Oracle is riding a wave of demand for its AI services like never before. The cloud giant’s backlog has soared past half a trillion dollars. But behind the growth lies a growing credit risk that’s hitting record highs.
AI Demand Drives rare Backlog
Oracle’s push into artificial intelligence is reshaping its business at a breakneck pace. Its Remaining Performance Obligation (RPO) — basically the value of contracted future revenue — exploded by 325% year over year, reaching an astonishing $553 billion. This figure signals that enterprises are flocking to Oracle’s cloud infrastructure to run AI workloads, propelling the company’s growth beyond anything seen in over a decade.
The company’s latest quarter highlighted this surge, with total revenue climbing 22% to $17 billion. Cloud infrastructure sales were the main driver, jumping 84%. This growth marks Oracle’s strongest organic expansion in more than 15 years, showing how quickly AI is becoming a core part of its business.
Massive Capital Buildout Puts Pressure on Finances
But that growth isn’t without cost. Oracle is locked in a fierce race to build the global data center capacity needed to handle these AI workloads. Cloud infrastructure demands massive upfront investment, which eats into profit margins compared to Oracle’s traditional software licensing.
Over the past 12 months, Oracle reported a negative free cash flow of $13.18 billion. The company plans to take on between $45 billion and $50 billion in new debt this fiscal year alone to fund this build-out. That’s a huge burden on the balance sheet and a key factor behind Oracle’s credit risk measures hitting record highs.
Innovative Financing Eases Some Strain
Oracle isn’t just borrowing blindly. It’s trying to share the financial load with its customers through a “bring-your-own-hardware” model. Under this arrangement, clients either supply their own physical equipment or make large advance payments.
So far, contracts totaling $29 billion have been signed under this program, allowing Oracle to lock in future revenue while limiting upfront capital outlays.
This creative approach has won praise from market watchers. It reduces Oracle’s exposure to hardware costs and spreads the risk, helping the company manage the massive capital demands of scaling AI infrastructure.
Investor Sentiment Remains Wary Despite Growth
Still, investors have been cautious. Oracle’s shares have lost nearly half their value over the past six months, recently closing at 132.86 euros. The stock trades more than 50% below its 52-week high. The market seems concerned that the hefty debt load combined with aggressive infrastructure spending could weigh on profitability and cash flow for years.
Oracle has raised its revenue forecast to $90 billion by fiscal 2027, reflecting confidence in long-term growth. But the short-term financial strain is clear.
The company is dealing with a delicate balance — pushing hard to meet AI demand while managing the risks that come with borrowing so heavily.
Broader Market Context Adds to Uncertainty
Oracle’s credit risk surge comes at a time when investor optimism is already running hot. Bank of America’s Bull & Bear Indicator recently neared a sell signal, as professional money managers show record-low cash levels and high confidence in stocks. That optimism often signals markets are stretched, making any shock more painful.
At the same time, the Federal Reserve has cut interest rates three times this year, aiming to support a weakening labor market despite inflation still running above target. These easing policies may help Oracle service its debt, but they also reflect economic uncertainty that could affect corporate spending on IT infrastructure.
The combination of Oracle’s soaring debt, aggressive AI expansion, and a market nearing peak optimism creates a complex picture. Investors and analysts alike are watching closely to see if Oracle’s gamble on AI pays off or if the financial strain will lead to trouble.
Oracle’s record backlog proves AI is a massive opportunity. But the company’s credit risk hitting new highs shows the heavy price of chasing that growth. How Oracle manages its debt and infrastructure costs in the coming years will shape its future — and potentially influence the broader tech sector’s AI race.
