Oracle’s Debt Dilemma Casts Shadow Over Upcoming Earnings

Oracle US68389X1054

As Oracle prepares to release its quarterly results, the market's focus is split between the company's prominent role in the artificial intelligence boom and growing concerns about its financial health. The upcoming earnings report, scheduled for release after the market closes on December 10, is seen as a critical test of whether the firm's fundamental performance can justify its ambitious growth strategy amid rising balance sheet risks.

A recent analysis from Morgan Stanley has highlighted a significant deterioration in Oracle's credit profile, casting a pall over the investment narrative. The technology giant's debt burden has climbed to $104 billion in fiscal year 2025, up from $90.5 billion just two years prior. Analysts from the firm have issued a warning that financial obligations could potentially balloon to as much as $290 billion by 2028.

Perhaps more alarming is the state of Oracle's free cash flow, which turned negative in 2025 for the first time since 1999. Unlike capital-rich competitors such as Microsoft and Apple, Oracle is relying more heavily on debt financing to fund the expensive expansion of its AI infrastructure. This growing reliance is reflected in the cost of insuring against a potential credit default; credit default swaps (CDS) for Oracle have recently hit a three-year high.

All Eyes on December 10th

The immediate spotlight is on the quarterly figures due December 10. Consensus estimates project earnings per share in the range of $1.63 to $1.64, which would represent an approximate 12 percent year-over-year increase. Revenue is anticipated to grow by about 15 percent, reaching over $16 billion.

However, the most closely watched metric will likely be the performance of Remaining Performance Obligations (RPO). This backlog of contracted future revenue skyrocketed by 359 percent in the prior quarter to $455 billion, fueled by intense demand for AI cloud capacity. Tyler Radke, an analyst at Citi, suggests this figure could potentially reach the $600 billion mark in the forthcoming report. This enormous pipeline is primarily driven by infrastructure needs from key partners, including OpenAI, Meta, and Nvidia.

Analyst Adjustments Reflect a Tense Balance

The stark contrast between Oracle's growth opportunities and its financing risks has prompted several financial institutions to adjust their outlooks. On December 5, Citigroup reduced its price target from $415 to $375, while maintaining a "Buy" rating. RBC Capital reaffirmed its "Sector Perform" rating alongside a $310 price target.

Market sentiment has already absorbed these mixed signals. Oracle's shares have declined by more than 14 percent over the last 30 days, reflecting investor apprehension that the substantial capital expenditures required to fulfill its massive order backlog may pressure profitability in the near term. Despite this recent pullback, the stock remains up roughly 15 percent since the start of the year.

The upcoming earnings call will be pivotal in providing clarity on one central question: How quickly can the company convert its historic backlog into realized revenue without placing excessive additional strain on its balance sheet?