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Price: $119.79
Discount category: Well below intrinsic value
Next earnings: 2026-12-10
Next earnings is estimate: Yes
Company name: Oracle
Sector: Database software & cloud infrastructure
About: Oracle sells database software, business applications and cloud infrastructure. Its applications include Fusion, NetSuite and Oracle Health, which was formerly Cerner. Oracle Cloud Infrastructure (OCI) rents computing capacity, much of it with GPUs for AI training and inference. Its fiscal year ends on May 31. Revenue was $67.4 billion in fiscal 2026 and $19.3 billion in Q1 fiscal 2027, when cloud revenue was $11.6 billion: $7.4 billion from infrastructure and $4.2 billion from applications. Clay Magouyrk and Mike Sicilia are co-CEOs, and Larry Ellison is Executive Chair and Chief Technology Officer. Its headquarters are in Austin, Texas.
Thesis: The market doubts that Oracle can fund its AI data centers and earn a good return on them. Capital spending was $55.7 billion in fiscal 2026 and $28.5 billion in Q1 fiscal 2027, and free cash flow was negative in each of the last five quarters. At August 31, 2026, Oracle carried $125.3 billion of notes and other borrowings and had $288 billion of data center lease commitments that had not started yet. Most of the $664 billion of remaining performance obligations comes from a few large AI cloud contracts. The cost of new debt rose: notes sold in February 2026 pay 4.55% to 6.85%, and notes sold in November 2026 pay 7.00% to 8.65%. Oracle also sold $30 billion of common stock in 2026, which dilutes shareholders. For the gap to close, four things must be true. Cloud infrastructure revenue must keep growing fast as the contracts turn into revenue; it grew 121% in Q1 fiscal 2027. Oracle must reach its fiscal 2027 guidance of at least $90 billion in revenue and $8.10 in non-GAAP EPS. Free cash flow must turn positive in the second half of fiscal 2028, as management plans, and reach at least $30 billion in fiscal 2029. Oracle must raise no more capital beyond the limit it set on October 28, 2026, and keep its investment-grade ratings. The Q2 fiscal 2027 report, expected in mid-December 2026, gives the next test. The free cash flow test comes in 2028, so the gap can close over two to three years if the plan holds.
Risks: Oracle spends much more on data centers than it earns in cash. Free cash flow was negative $23.7 billion in fiscal 2026 and negative $5.4 billion in Q1 fiscal 2027. Debt was $125.3 billion at August 31, 2026, and the coupons on new notes rose to as much as 8.650% in November 2026. A few large AI cloud contracts give most of the $664 billion of remaining performance obligations. If one of these customers cannot pay or reduces its plans, Oracle can have data centers and leases with no use. Oracle sold $30 billion of common stock in 2026, and its mandatory convertible preferred stock converts into common stock in January 2029. More equity sales would dilute shareholders further. Oracle has $288 billion of data center lease commitments with terms of 15 to 19 years that start from Q2 fiscal 2027 to fiscal 2029. These costs stay even if AI demand falls. Software license revenue fell 3% in Q1 fiscal 2027 as customers move to the cloud.
Balance sheet: Cash: $37.1B Debt: $125.3B Net debt: $88.3B Interest cover: 4.7× Debt due within 12 months: $7.6B Last debt due: 2066 Oracle funds its data centers with notes, term loans, stock sales, customer prepayments and long leases. At August 31, 2026, notes payable and other borrowings were $125.3 billion at carrying value, of which $7.6 billion was current. Cash, cash equivalents and marketable securities were $37.1 billion. Non-current operating lease liabilities were $30.6 billion, and Oracle had $288 billion of more data center lease commitments that start between Q2 fiscal 2027 and fiscal 2029, with terms of 15 to 19 years. Operating cash flow of $23.1 billion in Q1 fiscal 2027 includes $11.4 billion of customer prepayments for capital spending. Capital spending was $28.5 billion, so free cash flow was negative $5.4 billion. In Q1 fiscal 2027, Oracle sold $20 billion of common stock through its at-the-market program. On November 4, 2026, after the quarter, it sold $10 billion of common stock and $10 billion of notes with coupons of 7.000% to 8.650%. The $5.0 billion of 6.50% mandatory convertible preferred stock converts into common stock in January 2029. Interest cover is GAAP operating income of $6.7 billion divided by interest expense of $1.4 billion for Q1 fiscal 2027. Management targets net debt below 3.5 times adjusted EBITDA in fiscal 2029, and it says that investment-grade credit ratings are a priority. As of 2026-08-31.
Checkpoints: Dec 10, 2026 (estimate): Q2 fiscal 2027 results: cloud growth and capital spending. Pending. Watch: Revenue growth of 30% to 34%, cloud revenue growth of 65% or more and a confirmed fiscal 2027 outlook pass; slower cloud growth or a plan for more capital raises fail. 2028 (estimate): Positive free cash flow in the second half of fiscal 2028. Pending. Watch: Positive free cash flow from the second half of fiscal 2028 with no capital raises beyond the October 2026 limit passes; negative free cash flow after fiscal 2028 or new equity sales fail.
Recent events: 2026-11-04: Oracle sold 86,206,897 shares of common stock for $10 billion and $10 billion of notes due from 2029 to 2046, with coupons of 7.000% to 8.650%. These amounts equal the limit on new capital that it set on October 28, 2026. In June 2026, Oracle had said that it did not expect to issue more debt in calendar year 2026. 2026-10-28: At its Investor Day, Oracle set fiscal 2030 targets of at least $225 billion in revenue, a non-GAAP operating margin of at least 40% and non-GAAP EPS of at least $21. It expects positive free cash flow in the second half of fiscal 2028 and at least $30 billion in fiscal 2029, and net debt below 3.5 times adjusted EBITDA in fiscal 2029. It limited new capital raises through fiscal 2030 to $20 billion, $10 billion of equity and $10 billion of gross debt, not counting refinancing. It confirmed its fiscal 2027 guidance. 2026-09-12: Oracle said that Larry Ellison, Executive Chair and Chief Technology Officer, cancelled his 10b5-1 plan to sell Oracle stock. He sold no shares under the plan. 2026-09-10: Oracle reported Q1 fiscal 2027 results. Revenue grew 30% to $19.3 billion, cloud infrastructure revenue grew 121% to $7.4 billion and non-GAAP EPS grew 30% to $1.92. Remaining performance obligations rose to $664 billion. Operating cash flow was $23.1 billion, including customer prepayments, and free cash flow was negative $5.4 billion. Oracle completed the sale of $20 billion of common stock through its at-the-market program. It raised its fiscal 2027 guidance to at least $90 billion of revenue and non-GAAP EPS of $8.10. 2026-06-10: Oracle reported fiscal 2026 results. Revenue grew 17% to $67.4 billion, and non-GAAP EPS grew 27% to $7.63. Remaining performance obligations rose to $638 billion. Free cash flow was negative $23.7 billion. Oracle said that customer prepayments and customer-supplied hardware in its large AI contracts total $75 billion, and that it expects to raise about $40 billion of debt and equity in fiscal 2027. 2026-04-06: Hilary Maxson, the former Group Chief Financial Officer of Schneider Electric, joined Oracle as Chief Financial Officer. 2026-02-05: Oracle sold $5.0 billion of 6.50% Series D mandatory convertible preferred stock. It converts into common stock in January 2029. 2026-02-04: Oracle sold $25 billion of notes due from 2029 to 2066, with coupons of 4.550% to 6.850% and one floating-rate series. It also started an at-the-market program to sell up to $20 billion of common stock.