I haven't bought too many AI stocks in my portfolio yet, except for a few data center REITs and one major chipmaker. But recently, I pulled the trigger and added shares of Oracle (NYSE: ORCL) to my portfolio after shares declined by more than 60% from their 52-week high.
The short version is that the market has legitimate concerns about Oracle's massive backlog and the debt it is taking on to fulfill its contracted orders. But if the company's strategy works out, the stock could be an incredible bargain at the current share price. Here's a rundown of why Oracle's stock has been beaten down, why I bought, and why I may add even more to my position.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
The biggest bull case for Oracle is also the same reason many investors are skeptical. The company has a $638 billion remaining performance obligation (RPO), which represents the contracted future revenue its customers have committed to. This is 363% higher than it was a year ago, and as you can probably guess, the surge in AI infrastructure spending is the main reason.
For its 2027 fiscal year, which started June 1, Oracle is guiding for $90 billion in revenue. For reference, in its 2026 fiscal year, the company generated about $67 billion. And keep in mind that the $638 billion figure represents only contracts that have already been signed — as customer needs grow, this figure could increase.
However, many investors are justifiably skeptical about the massive backlog. And it's fair to say that if we knew Oracle would actually get all $638 billion of that contracted revenue, the stock wouldn't be as beaten down as it is.
For one thing, about half of the backlog comes from a single customer — AI platform giant OpenAI. That company recently delayed its IPO, which added to major concerns about its ability to meet its obligations. In addition, Oracle is not only spending all of its income to set itself up to fulfill its backlog but is also taking on debt. The company added $43 billion in debt to its balance sheet in the 2026 fiscal year, and expects to raise an additional $40 billion between debt and equity in the current fiscal year.
In short, Oracle's spending plan is frightening investors, and it's not hard to see why. The company is spending billions of real dollars (much of which it doesn't have) in pursuit of promised revenue.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
