Oracle's Rally Masks a Balance Sheet That Keeps Getting Heavier

Oracle shares rally on Google Cloud partnership and record backlog, yet heavy capex and debt raise analyst caution.

The stock market has a way of rewarding momentum, and Oracle has been delivering plenty of it lately. Shares climbed 2.27 percent on Friday to close at €127.10 in Frankfurt, capping a week that saw the stock advance 12.84 percent. The bounce follows a turbulent stretch that had knocked the shares well off their highs — but beneath the surface, the company's growth story is becoming increasingly intertwined with a debt-fueled expansion that even bullish analysts are starting to flag.

A String of Wins Reshapes the Narrative

The recent surge traces back to a flurry of announcements that began in late July. On July 30, Oracle and Google Cloud unveiled an expanded partnership that will embed Google's Gemini AI models directly into Oracle's Fusion Applications and NetSuite platforms. Bloomberg reported the stock jumped more than 8 percent that day alone. The following Monday, shares added another 9.22 percent, reaching $141.85, as investors digested the Google deal alongside a series of fresh contract wins.

Among those wins: a ten-year agreement with the U.S. Department of Defense under its Enterprise Software Initiative, awarded July 23. The base value for the first five years stands at $3.31 billion, with the potential to reach $6.99 billion if all option years are exercised. Then came a $400 million contract — announced August 3 — under which CACI International will modernize HR systems for the U.S. Office of Personnel Management using Oracle Fusion HCM, complete with embedded artificial intelligence.

These deals reinforce a picture that emerged from Oracle's fourth-quarter results on June 10. The company posted earnings per share of $2.11, beating consensus estimates of $1.89 by 11.64 percent. Revenue hit a record $19.2 billion, up 21 percent in dollar terms, while cloud revenue grew 47 percent to $9.9 billion. The backlog swelled by $85 billion to a record $638 billion, and cloud infrastructure revenue surged 93 percent year over year.

Management reaffirmed its fiscal 2027 revenue target of $90 billion and raised its EPS guidance to $8.05, an 18 percent increase on a constant-currency basis. For the current quarter, Oracle expects revenue growth between 27 and 29 percent, with cloud growth of 58 to 64 percent.

The Cost of Ambition

The bullish case is straightforward: Oracle has established itself as a credible player in AI infrastructure, with demand that far exceeds what's currently being billed. But financing that growth has come at a steep price. Last fiscal year, Oracle invested $55.66 billion in capital expenditures while generating negative free cash flow of $23.69 billion. Management plans to raise roughly $40 billion more in debt and equity during the current fiscal year.

That capital intensity is precisely what prompted UBS to trim its price target on Friday — from $285 to $245 — even as the bank maintained its Buy rating. The analysts cited rising risks around AI infrastructure spending, questions about return on invested capital, tight credit markets, and Oracle's dependence on OpenAI as a customer. The fact that UBS kept its Buy recommendation despite the cut suggests that even the optimists are now openly acknowledging the risks rather than waving them away.

Michael Burry, meanwhile, has reopened a short position on Oracle, explicitly pointing to leverage concerns. Insider activity tells a similar story: over the past 90 days, all 13 registered insider transactions were sales, totaling roughly $132.3 million, led by Vice Chairman Jeffrey Henley. The company has also brought in Hilary Maxson, formerly of Schneider Electric, as its new CFO — a move that signals a more disciplined approach to capital structure management.

A Stock Still Far From Its Peak

Despite the recent rebound, Oracle shares remain down 23.44 percent year to date and sit more than 56 percent below their September 52-week high of €294.85. The gap between the current price and that peak underscores just how much confidence was shaken during the downturn — and how much ground the stock would need to reclaim to restore it.

The tension at the heart of Oracle's story is simple: a product strategy and order book that justify genuine enthusiasm, weighed against a balance sheet that grows more dependent on external financing by the quarter. The next earnings report, due September 8, will offer the first clear test of whether this aggressive bet on AI infrastructure continues to pay off — or whether the bill for that bet is about to come due.