Oracle’s Debt-Fueled Expansion Tests Investor Confidence

Oracle US68389X1054

All eyes are on Oracle as it prepares to release its quarterly earnings. The software giant finds itself in a precarious position, caught between a record-breaking pipeline driven by artificial intelligence demand and growing unease over the financial strategy funding its ambitious growth.

The company is scheduled to disclose its second-quarter financial results after the U.S. market closes on Wednesday, December 10th. According to LSEG data, analysts are forecasting solid growth: revenue is anticipated to climb 15% to $16.2 billion, with adjusted earnings per share rising approximately 11% to $1.64. However, these traditional profit metrics are unlikely to be the primary focus for the market this time around.

Instead, investor anxiety is centered squarely on Oracle's balance sheet and its escalating debt. Market sentiment has been dampened by reports suggesting the company could be seeking an additional $38 billion in financing. This potential sum would add to an existing estimated liability burden of $105 billion. The driving force behind this substantial capital requirement is the costly expansion of AI infrastructure, with capital expenditures projected to reach $35 billion by the 2026 fiscal year.

Massive Backlog Highlights Growth Potential

Counterbalancing these liquidity concerns is evidence of tremendous growth potential. Oracle reported a dramatic surge in its remaining performance obligations, or backlog, to $455 billion in the first quarter—a staggering 359% increase year-over-year. This expansion is primarily fueled by major contracts for AI infrastructure services.

Despite this robust demand, the market is currently prioritizing risk assessment. Oracle shares are currently trading at €189.02, representing a discount of roughly 32% from their 52-week high. This cautious investor stance contrasts with the maintained optimism from several analyst firms. Institutions like RBC Capital, with a $310 price target, and TD Cowen, with a $400 target, view the recent sell-off as an overreaction.

Tomorrow's earnings release will be a critical test of whether Oracle's growth narrative can outweigh the prevailing financial concerns. For the stock's future trajectory, concrete commentary on investment plans and the anticipated revenue timeline from the OpenAI partnership will likely carry more weight than the top-line revenue figure alone.