Oracle’s $40 Billion Gamble: Can the Cloud Giant Borrow Its Way to AI Dominance?
Published on 07/24/2026 at 19:31 | Redaktion boerse-global.de
Oracle finds itself caught between two starkly different realities. On one hand, the company has secured a landmark Pentagon contract worth up to $6.99 billion and boasts a staggering $638 billion backlog of unfulfilled orders. On the other, its credit rating has been slashed to within one notch of junk, debt has ballooned to roughly $167 billion, and the stock is hovering just above a 52-week low of €102.10.
The tension between these competing narratives has created a schism among investors and analysts alike. While some see a deeply undervalued company poised for a massive recovery, others warn of a looming liquidity crisis that could force further dilution or, in a worst-case scenario, a slide into speculative-grade territory.
The Pentagon’s Seal of Approval
On July 23, the U.S. Department of Defense awarded Oracle its first direct, department-wide enterprise software agreement. The contract, which runs for an initial five-year base period valued at $3.31 billion, includes an option for an additional five years that could bring the total to nearly $7 billion. The deal consolidates on-premises licenses, SaaS offerings, and consulting services for the Defense Department, Coast Guard, and intelligence community under a single framework, simplifying procurement for more than 3.4 million personnel.
The Pentagon estimates the agreement will save taxpayers at least $441 million. It follows a similar pact with Microsoft in May worth $9.69 billion, and comes as Oracle co-founder Larry Ellison’s political ties to Donald Trump have drawn attention from outlets like CNBC.
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Yet the stock barely budged on the news. After a brief after-hours pop, shares closed at €105.56 on Thursday, down 4.30% on the day and just 0.48% above the 52-week trough hit on July 23. The relative strength index of 29.9 signals an oversold condition, but technical indicators have done little to stem the selling pressure.
The Credit Crunch That Won’t Quit
The root cause of investor anxiety is clear: Oracle is spending money faster than it can generate it. Capital expenditures surged to $55.66 billion in the last fiscal year, pushing free cash flow to negative $23.69 billion. Total debt now stands at approximately $167 billion, and S&P Global downgraded the company’s long-term rating to BBB- on July 9, just one step above junk status.
The market has already priced in the risk. Oracle’s five-year credit default swaps hit a record 203 basis points on Friday, signaling growing unease among bondholders. Moody’s currently carries a negative outlook on the company, raising the specter of a further downgrade that could force institutional investors with investment-grade mandates to dump their holdings.
To fund the next phase of its AI infrastructure buildout, Oracle plans a $40 billion equity raise in the current fiscal year. But the market’s reception has been tepid at best. Analysts project the free cash flow deficit could widen to nearly $42 billion by fiscal 2027, while management has penciled in capital expenditures of $95 billion for that same year. With a 30-day annualized volatility of 43.18%, the market is signaling it won’t continue to fund this expansion without visible margin stabilization.
The $638 Billion Question
Oracle’s remaining performance obligations, or RPO, reached $638 billion in the latest quarter, a 363% increase year-over-year. That backlog represents future revenue that has been contracted but not yet recognized. The catch: nearly half of it is reportedly tied to a single customer, OpenAI. If the necessary data centers aren’t built on schedule, the entire calculus falls apart.
The company’s ability to convert that backlog into cash will be the single most important metric for investors in the coming quarters. The Pentagon contract provides a stable, multiyear revenue stream, but it represents a fraction of the total RPO and does little to address the immediate cash burn.
Bull vs. Bear: A Divided Analyst Community
The analyst community is split down the middle. Guggenheim rates Oracle a buy with a price target of $400, while CLSA is far more cautious with a hold rating and a $145 target. Mizuho believes the stock could more than double from current levels. The broader consensus sits at a moderate buy with an average target of $265.03, more than double the current share price of around €104.
Bulls point to three key arguments. First, the Pentagon deal locks in years of stable revenue from the public sector. Second, Oracle has successfully integrated its database technology into competing clouds like Microsoft Azure and Google Cloud, generating high-margin revenue that doesn’t require capital-intensive data centers. Third, the stock is technically oversold with an RSI of 29.0, and the average analyst target of €219.14 suggests significant upside.
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Bears counter that Oracle is taking on expensive debt to finance hardware for an AI demand cycle that could eventually become commoditized. They warn that a further downgrade to junk could trigger forced selling, that the cash deficit is growing, and that capital expenditures are escalating without visible margin improvement. Insider sales totaling $63.7 million over the past three months add another layer of concern.
What’s Next
The immediate catalyst will be the next quarterly update, which should provide clarity on the pace of RPO conversion and the timing of the announced $20 billion share issuance program. If Oracle can demonstrate that its cash burn is shrinking quarter over quarter while maintaining its BBB- rating, the proximity to the 52-week low could mark a cyclical bottom.
A successful $40 billion equity raise without severe dilution or rising interest costs could spark a technical recovery toward the 50-day moving average of €148.09. But if credit spreads continue to widen or the backlog conversion slows, a break below the psychologically important €100 level becomes a real possibility.
For now, Oracle remains a high-stakes bet on whether massive borrowing can successfully finance a generational shift in computing infrastructure — or whether the debt load will ultimately prove too heavy to carry.
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