Oracle's $40 Billion Capital Raise Puts a Pivotal AI Bet Under the Microscope

Oracle's $638B cloud backlog demands massive capex, but a BBB- rating and negative cash flow fuel investor skepticism.

The arithmetic of Oracle's artificial-intelligence ambitions has never been more demanding. To convert a record $638 billion cloud and AI backlog into revenue, the company needs to build at a furious pace — and that construction bill is now the central tension in its investment case.

Management plans to raise roughly $40 billion in fresh capital to fund the infrastructure required to service that order book. The move lands at a delicate moment: S&P Global Ratings has already clipped the company's credit grade, and the market has marked the shares down sharply from their highs.

A Credit Downgrade That Reframes the Growth Story

S&P lowered Oracle's long-term issuer rating to BBB- from BBB in July, a single notch above speculative territory. The agency pointed to a free cash flow shortfall of $23.7 billion over the past fiscal year, a figure that reflects the sheer scale of AI-related capital expenditure — more than $55 billion in capex alone. Total debt now exceeds $122 billion, putting leverage at roughly five times EBITDA.

The downgrade has sharpened the debate about how Oracle finances its expansion. The company's debt-to-equity ratio stands at 3.21, and its negative free cash flow has become a focal point for skeptics. Among them is investor Michael Burry, who disclosed a short position in mid-August taken at around $144.63 per share. Burry has argued that Oracle overstates earnings by depreciating its graphics processors too slowly and carries hidden leverage through off-balance-sheet leasing obligations.

The market's response has been measured but telling. On Monday, the stock slipped roughly 2.5 to 3 percent depending on the trading venue, settling at around €123. The shares now sit about 58 to 59 percent below their 52-week high of €294.85 reached in early September of last year. Year to date, the stock is down 26 percent, and over a 12-month stretch it has lost about 40 percent.

The Bull Case: A Backlog That Demands Respect

For all the balance-sheet anxiety, the growth narrative retains considerable force. Oracle's remaining performance obligations — the contracted but unbilled revenue in its cloud and AI infrastructure business — stand at $638 billion, a 363 percent jump year over year. The company has positioned itself as a go-to provider of data-center capacity, and demand currently outstrips supply.

DBS analyst Andy Yu reaffirmed a buy rating on Monday with a price target of $310, citing the backlog as the core catalyst. The company has guided to $90 billion in revenue for fiscal 2027, alongside adjusted earnings per share of $8.05, targets it laid out in June alongside its fourth-quarter results.

Institutional investors are voting with their wallets. Steve Cohen's Point72 increased its Oracle stake by 188 percent in the second quarter, to 3.41 million shares worth nearly $500 million, partly funded by selling Broadcom holdings. Roman Butler Fullerton also established a new position on August 17, buying more than 15,300 shares for roughly $2 million. The analyst consensus remains constructive, with an average price target of $252.87 and some outliers as high as $400.

Cloud infrastructure revenue grew 93 percent in the fourth fiscal quarter to $5.8 billion, a growth rate that few software companies can match. Gross margin sits at a healthy 65.8 percent, even if that metric does little to answer whether the investment pace is sustainable.

Regulatory Friction in New Mexico

Beyond the financials, Oracle faces a concrete operational hurdle. The New Mexico Supreme Court issued two unanimous emergency orders on August 23 that halted the air-quality permitting process for "Project Jupiter," a data center backed by Oracle and OpenAI in the Santa Teresa Industrial Park. A hearing officer withdrew from the case on Monday after environmental groups filed a recusal motion, and Democratic Representative Melanie Stansbury has asked state authorities for clarity on the project's water supply.

The delays are modest in the context of Oracle's overall scale, but they illustrate how politically and regulatorily exposed the AI construction boom has become.

Product Momentum Continues

Operationally, Oracle keeps expanding its portfolio. Its Oracle Health division recently unveiled new features for its Clinical AI Agent, including automated billing coding and AI-generated summaries of patient records designed to reduce documentation burdens for physicians. The unit had earlier introduced an AI-powered patient portal that uses OpenAI models to translate medical jargon into plain language.

In infrastructure, Oracle deepened its partnership with Amazon Web Services, making its Exadata Database Service available across 22 AWS regions. The company also entered a multi-year collaboration with quantum computing specialist Quantinuum to integrate its "Helios" machine into Oracle's cloud, a step toward hybrid quantum-AI applications.

The Stakes Ahead

For investors, Oracle has become a study in contrasts: a company with extraordinary demand visibility and product momentum, set against a financing model that looks increasingly stretched. The stock's retreat from its highs suggests the market has already begun pricing in these risks. Whether the recovery from the late-July low of €100.76 has staying power may become clearer when Oracle reports quarterly results on September 8.

Until then, the shares look like a bet on whether the company can grow its way out of a balance-sheet squeeze — or whether the bill for AI dominance comes due first.