Oracle stock is deep in the red, but Wall Street sees 220% upside

Just a few months ago, investors were singing Oracle’s (ORCL) praises after it reported off-the-charts revenue growth and unveiled a massive backlog. Its Q3 earnings surprised Wall Street, which had assumed the tech dinosaur had lost its edge. Fast forward to today, and Oracle’s fundamentals remain exceptionally strong. Cloud demand is booming, with the company signing massive AI infrastructure contracts that forecast years of accelerating revenue growth. Yet, the stock tells a different story. ORCL stock is down roughly 36% year-to-date (YTD), touching a new 52-week low of $120.03 yesterday.

The selloff reflects more of investors’ concerns over the company’s aggressive AI spending rather than the company's long-term prospects. Even Wall Street remains overwhelmingly optimistic, with one analyst expecting the stock to surge to $400, which implies a potential 220% upside from current levels.

Oracle's Business Is Firing on All Cylinders. So Why Is the Stock Falling?

Investors are becoming more selective now about AI stocks and are asking the important questions before blindly investing in anything linked to AI. Since Oracle is building one of the world's largest AI cloud infrastructure platforms, there are a few reasons why investors are cautious:

1. Investors are worried about the heavy AI spending

Building AI infrastructure is extraordinarily expensive. Like most big tech giants, Oracle is spending heavily on AI infrastructure, with net cash outlays related to capital expenditures reaching $48 billion in fiscal 2026. The company now expects this number to increase to $70 billion in fiscal 2027.

2. The balance sheet has become a concern

Recently, S&P downgraded Oracle’s credit rating to BBB-, the last investment-grade rating before junk status. The rating agency cited reasons such as enormous AI spending, uncertainty around future profitability, and concerns that the company won’t be able to meet its debt obligations. Currently, the company’s debt-to-equity ratio sits high at 2.84, while its cash and equivalents stood at $32 billion in the quarter.

3. The focus is on free cash flow and not revenue

While the heavy AI spending will ultimately prove worthwhile for long-term investors, for short-term investors this creates uncertainty. These investments have put Oracle’s free cash flow under pressure, which came in at a negative $23.7 billion in Q4. Nonetheless, Oracle’s revenue grew 21% year-over-year (YoY) to $19.2 billion. Its cloud infrastructure revenue, in particular, grew 93%, led by AI workloads and Oracle Database services. Furthermore, Oracle’s multicloud revenue surged 404% over the prior year, while multicloud bookings jumped 325%, indicating that customer demand remains exceptionally strong.

Instead of rewarding today’s revenue growth, investors have punished ORCL stock as current cash flows are being sacrificed. In fact, many investors are treating Oracle as a high-risk AI infrastructure play rather than a legacy software company.

The Backlog May Be the Most Important Number Investors Are Missing

Oracle made it clear during the Q4 earnings call that the targeted $70 billion in capex for fiscal 2027 is backed by customer commitments and prepayments. The strongest proof is the company’s massive backlog. Notably, the company’s remaining performance obligations (RPO) currently stand at an eye‑catching $638 billion, offering a glimpse of revenue that has effectively already been contracted but not yet recognized. What investors might be overlooking is that this massive number is not a mere projection or a vague target. This is derived from signed customer contracts that are expected to translate into revenue over time. The company isn’t just building data centers because of hype, but because customers have committed to future capacity. In fact, management expects to recognize 12% of this backlog within the next year, while another 34% could be recognized over the following two years.

Despite investors’ concern about AI spending, Oracle continues to spend aggressively. Long-term investors might want to ignore the noise and focus on what these investments are building. If Oracle successfully converts its huge backlog into revenue while maintaining its AI momentum, the recent selloff might not be remembered as a warning sign but as a rare period when the market underestimated Oracle’s long-term story.

This is probably why Wall Street maintains its consensus “Strong Buy” rating for ORCL stock. Of the 44 analysts covering the stock, 33 rate it a “Strong Buy,” one says it is a “Moderate Buy,” nine rate it a “Hold,” and one says it is a “Strong Sell.” The average target price of $255.80 implies a potential upside of 105% from current levels.

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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