Backlog is massive but cash is bleeding
Oracle’s fiscal fourth-quarter 2026 results revealed an impressive expansion in its AI segment. For the quarter, revenue totaled $19.2 billion, reflecting a 21% year-over-year increase. Revenue from cloud infrastructure leaped to $5.8 billion, a 93% annual boost. Over the full fiscal year, total revenue climbed 17% to $67.4 billion, with cloud services alone surging to $34.0 billion, a 39% year-over-year improvement.
The most striking figure came from remaining performance obligations, which shot up to $638 billion — a 363% increase compared to the previous year. These long-term commitments, mainly multi-year contracts for AI training and inference services, are the primary force behind Oracle’s growth strategy. These figures highlight Oracle's ability to secure large-scale deals with AI developers, setting it up for future revenue generation.
Capital spending is strangling free cash
While the financial numbers are impressive, Oracle faces a serious challenge from the costs tied to its rapid growth. In fiscal 2026, the company’s capital expenditures reached $55.7 billion, over double the $21.2 billion spent the year before. This spending is focused on the development of AI data centers and the purchase of high-performance computing clusters required to manage the growing cloud infrastructure demands.
The impact is clear: free cash flow turned deeply negative at $23.7 billion during the same period. Even with an operating cash flow gain of 54% to $32.0 billion, Oracle has struggled to cover the capital outlay. As a result, the company now depends heavily on external financing to maintain its ambitious infrastructure projects. The reliance on borrowed funds highlights the financial strain behind Oracle’s push into the AI market.
Debt and dilution loom as risks
To fund the massive spending, Oracle issued $43 billion in debt during fiscal 2026. Management has already signaled a need to raise an additional $40 billion in fiscal 2027, including a $20 billion at-the-market equity program authorized in February. This new funding mechanism could lead to significant shareholder dilution, especially if Oracle's stock price rebounds and management chooses to issue more shares to raise capital.
Investors are closely watching the Federal Reserve for signals about future interest rate changes. Recent shifts in the financial environment have added to the uncertainty surrounding Oracle’s ability to sustain its capital-heavy operations. Any tightening of monetary policy could increase the cost of servicing Oracle’s growing debt load, making it harder to maintain the current pace of infrastructure development.
The new Federal Reserve Chair, Kevin Warsh, may take a more hawkish stance toward interest rates, which could lead to further tightening in the U.S. economy. If rates rise, Oracle could face higher borrowing costs, which might force the company to slow its expansion or delay the activation of its infrastructure backlog. Such a slowdown could delay the conversion of Oracle’s large backlog into tangible revenue, weakening the company’s long-term growth narrative. The stock’s recent collapse reflects investor concerns about these financial risks, which could persist for some time.
In summary, Oracle is building a formidable presence in the AI-driven cloud market, but the costs of that expansion are beginning to show in its financial health. With high levels of debt, potential equity dilution, and uncertain financing conditions, Oracle must navigate a complex path to turn its growing backlog into real and sustained profitability.