Oracle's Record Cloud Growth Collides With a Debt-Fueled Expansion That Rattles Bond Investors
Published on 07/18/2026 at 18:24 | Redaktion boerse-global.de
When Oracle reported a 93% surge in cloud infrastructure revenue and a $638 billion backlog of future contracted revenue, the headline numbers seemed to confirm its status as a winner in the AI arms race. Yet the market has fixated on a different metric: the colossal price tag of building out that capacity. The result is a stark disconnect between operational momentum and financial strain.
The strain became explicit on July 9, when S&P Global Ratings downgraded Oracle's credit rating to BBB-, just one step above junk territory. The rating agency cited the heavy capital requirements of the rapidly growing AI infrastructure business. Oracle plans to spend between $90 billion and $95 billion on capital expenditures in fiscal 2027 alone, far exceeding earlier estimates of around $60 billion. To bridge that gap, the company intends to raise roughly $40 billion in new debt and equity.
To fund the build-out, Oracle has already become one of the largest non-financial corporate bond issuers, with approximately $117 billion in outstanding debt. The company expects a free cash flow deficit of about $42 billion as it pours money into data centers. Credit markets have taken notice: the cost of insuring Oracle's debt against default rose to a record 198.23 basis points on Friday, sending a clear signal that creditors are pricing in rising risk.
The stock has suffered accordingly. Shares closed Friday at €110.56 on the Xetra exchange, down 30.75% over the past 30 days and 33.48% year to date. From the 52-week high of €280.70 hit in September 2025, the decline amounts to 60.61%. On Friday, the stock touched a fresh year low of €105.10.
Should investors sell immediately? Or is it worth buying Oracle?
Technical indicators suggest the selling may be overdone. The 14-day relative strength index stands at 29, a level that typically signals oversold conditions. Still, the stock trades 28% below its 50-day moving average and only 5% above its recent low.
Despite the rout, analysts remain bullish. The average price target is €220.14, implying nearly 100% upside from current levels. Optimists point to the 93% year-over-year growth in Oracle Cloud Infrastructure revenue and a reported $14 billion data center financing package with PIMCO.
But the risks are mounting. About half of Oracle's massive $638 billion remaining performance obligations are tied to a single customer: OpenAI. That concentration exposes Oracle to significant counterparty risk. Meanwhile, the launch of Moonshot AI's Kimi K3 model has raised questions about whether Oracle's cloud partners can maintain their technological edge.
Oracle has also been cutting costs elsewhere. The company reduced its workforce by approximately 21,000 positions, or 13%, over the past year, shrinking its traditional business to focus on the AI infrastructure bet. The job cuts underscore the strategic pivot away from legacy operations.
On the operational front, Oracle continues to expand its AI offerings. On July 17, it launched Enterprise AI for OCI Dedicated Cloud, allowing customers to run generative AI workloads where their data resides. Earlier, it released a new builder environment for AI agents in its enterprise software. Reports also indicate Oracle is competing for a highly secure cloud network for intelligence sharing in Japan.
Oracle at a turning point? This analysis reveals what investors need to know now.
The company paid a quarterly dividend of $0.50 per share with an ex-date of July 10 — a small payout that seems almost incidental against the backdrop of the debt debate.
At the heart of the dilemma is a simple question: can Oracle convert its record backlog into free cash flow quickly enough to prevent further credit deterioration? Management has acknowledged that gross margins will continue to decline in fiscal 2027 as data center costs ramp up. The company's aggressive financing strategy is testing investor patience.
For now, Oracle is betting that its exclusive position in the AI cloud market will generate returns that justify the spending. But with credit markets drawing a red line and the stock near its lows, the race between growth and financing costs is tighter than ever.
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