Oracle’s AI Ambitions Face a $248 Billion Reality Check

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Oracle's latest financial disclosures have presented investors with a complex puzzle. While the company reported a record order backlog and earnings that surpassed expectations, these positive indicators are now weighed against a staggering future financial commitment. The central debate revolves around how this burden will constrain Oracle's free cash flow in the coming years, despite its overflowing sales pipeline.

For its fiscal second quarter of 2026, Oracle delivered a set of results that left the market with mixed feelings.

• Revenue reached $16.1 billion, marking a 14% year-over-year increase. However, this figure came in slightly below the heightened expectations of analysts.
• Earnings provided a brighter spot, with non-GAAP earnings per share of $2.26, exceeding consensus estimates.
• Backlog surged to an all-time high, with Remaining Performance Obligations (RPO) hitting $523 billion.

The monumental RPO figure underscores exceptionally strong demand for Oracle's cloud services, fueled significantly by major new contracts with clients like Meta and OpenAI. This backlog offers tangible support for the company's long-term growth narrative. Yet, the slight revenue miss, following a period of AI-driven stock euphoria, tempered immediate enthusiasm and contributed to a cautious market reaction.

The $248 Billion Question

The primary source of recent investor unease stems from a number buried in Oracle's latest 10-Q filing: $248 billion in disclosed leasing obligations. This represents a sharp quarter-over-quarter jump in future financial commitments.

The vast majority of this sum is tied to agreements for data centers and cloud capacity, essential for the aggressive expansion of its AI infrastructure. Notably, "substantially all" of these obligations are scheduled to come due by the 2028 fiscal year—a remarkably tight timeframe for such a colossal volume.

This move sends a dual message. Firstly, management appears highly confident that long-term demand for AI and cloud services will be sufficient to utilize this capacity. Secondly, the sheer scale of the commitment highlights the significant costs involved and signals a marked increase in the capital intensity of Oracle's business.

Market experts are actively debating how this leasing structure alters the company's free cash flow profile. The number illuminates Oracle's growth potential but simultaneously reveals the substantial financial flexibility the company is willing to sacrifice to compete with larger hyperscale rivals.

Market Reaction and Analyst Scrutiny

Oracle shares have experienced pronounced volatility in recent days. An initial post-earnings decline was followed by turbulent trading, reflecting uncertainty over the implications of the leasing disclosures and the revenue miss.

A significant signal for institutional investors was the action taken by Goldman Sachs. The bank sharply reduced its price target for Oracle from $320 to $220. The rationale cited was the heightened capital intensity and increased execution risks associated with the massive AI investment agenda. Such downward revisions often indicate that while analysts acknowledge the structural growth story, they anticipate near-term headwinds for margins and cash flows.

Concurrently, "buy-the-dip" sentiment has provided some support. A segment of investors remains committed to the long-term AI narrative, viewing the current weakness as a potential entry point. This dynamic helps explain why the stock has not entered a freefall, repeatedly attempting to pare losses despite the prevailing pressures. The shares recently closed at €160.68, reflecting a decline of over 16% for the week and approximately 15% for the month—a clear sign of pressure, yet not a panic-driven selloff.

Denial of OpenAI Delay Rumors

Adding to the turbulence were recent reports suggesting potential delays, stretching to 2028, in Oracle's data center projects for OpenAI. Given that OpenAI is one of Oracle's most prominent AI partnerships, these rumors immediately impacted market sentiment.

Management responded with a swift and clear denial, stating there are no delays at locations necessary to fulfill contractual obligations with OpenAI and that all milestones remain on plan. This clarification alleviated some pressure on the stock by dispelling concerns over operational hiccups in a key strategic project. Combined with the record RPO, the rebuttal emphasizes Oracle's assertion that its major AI and cloud projects are both contractually secured and operationally on track.

Operational Expansion Continues Apace

Amid the debates over balance sheet risks, Oracle continues to advance its growth strategy. The company recently launched its "Oracle Database@Google Cloud" service in India, deepening its integration with major hyperscalers to capture additional market share in the global cloud database market.

Furthermore, new mandates in the traditional enterprise business, such as the collaboration with Ajman Bank, demonstrate ongoing traction. These deals prove that Oracle's growth is not solely dependent on AI projects but rests on a broader foundation of software and cloud services.

The Bottom Line

Ultimately, Oracle finds itself at a crossroads defined by two colossal figures: a record $523 billion order backlog signaling robust demand, and $248 billion in leasing obligations revealing the substantial cost of its growth ambitions. The recent price target cut from Goldman Sachs illustrates a shift in investor focus, from pure AI euphoria toward questions of capital discipline and execution quality.

The coming quarters will be decisive. The key metrics to watch will be the speed at which Oracle can convert its immense backlog into realized revenue and cash flow, and whether its forecasted AI and cloud projects can scale without major delays. Success on these fronts would significantly mitigate the perceived burden of the leasing commitments. Operational setbacks, however, would bring the currently debated risks into sharper focus for the market.