Oracle’s Heavy Debt Load Weighs on Investor Sentiment

Following its quarterly earnings release on December 10th, Oracle finds itself facing significant market pressure. The company's shares have shed more than 14% in a single week, marking a decline exceeding 40% from the record high reached in September. This sell-off stems from investor concerns over short-term profitability, driven by multi-billion dollar investments in AI infrastructure and a subdued revenue outlook.

The transition in Oracle's executive suite adds complexity to its current challenges. In September, co-CEOs Clay Magouyrk and Mike Sicilia took over from Safra Catz during a pivotal moment for the firm. The company is undertaking one of the most ambitious infrastructure expansions in tech history. Founder Larry Ellison also announced a move toward "chip neutrality," selling Oracle's stake in chip designer Ampere to SoftBank for $6.5 billion. While the $2.7 billion gain from this sale provided a boost to the quarterly figures, it signifies a strategic shift away from in-house chip development.

Quarterly Results Disappoint the Street

For its second fiscal quarter of 2026, Oracle reported revenue of $16.1 billion, slightly missing analyst expectations of $16.2 billion. Its cloud infrastructure segment, generating $4.1 billion, saw impressive year-over-year growth of 68%. However, investor attention was captured by a different metric: capital expenditures. The company now forecasts its FY2026 Capex will reach $50 billion—a $15 billion increase from its September guidance. In the second quarter alone, Oracle spent $12 billion, far surpassing the $8.25 billion analysts had projected.

This aggressive spending has directly impacted cash flow. The company reported a negative free cash flow of $10 billion, indicating its current outlays for building out data centers to support AI applications are outstripping its incoming cash.

Mounting Debt and Credit Concerns

To finance this growth, Oracle is leaning heavily on debt, with its total debt load standing at approximately $100 billion. In the wake of the earnings report, the cost of insuring against an Oracle default, as measured by Credit Default Swaps (CDS), climbed to five-year highs. Certain bonds previously considered investment grade are now trading at levels typical of junk-rated debt.

Should investors sell immediately? Or is it worth buying Oracle?

This financial profile stands in contrast to hyperscale rivals like Amazon, Microsoft, and Google. These competitors boast higher credit ratings of AA or A and consistently generate positive cash flow. Oracle carries a BBB rating and is funding its AI ambitions primarily through borrowed capital.

Key Partnership Faces Scrutiny

A significant source of Oracle's future revenue is its $300 billion partnership with OpenAI, which accounts for a major portion of its order backlog. This alliance, however, is introducing additional uncertainty. A December 12th Bloomberg report suggested that some data centers intended for OpenAI have been delayed from 2027 to 2028 due to shortages of materials and labor. While Oracle denied the report and emphasized it is meeting all contractual milestones, its heavy reliance on a single, large customer remains a notable risk factor.

Wall Street Recalibrates Expectations

The quarterly update prompted at least 13 financial institutions to lower their price targets for Oracle stock. The average target now sits around $300, down from approximately $350 in October. Brad Sills, an analyst at BofA, described a "timing mismatch," where today's substantial investments will only convert into revenue after a significant delay.

Morningstar analyst Luke Yang reduced his fair value estimate from $340 to $286 per share. In contrast, Jefferies' Brent Thill maintained a more optimistic stance with a $400 price target, viewing the infrastructure investments as a strategically sound long-term move.

Oracle shares closed at $188.20 on December 12th, down a further 0.93%. The central question for investors is whether the company can translate its massive $523 billion order backlog into realized revenue quickly enough to justify its current spending spree and meet heightened medium-term expectations.