Oracle (NYSE:ORCL) shares climbed 1.77% on Friday to close at $126.41, rebounding from a new 52-week low of $121.50. Despite the late-week recovery, the stock ended the week 10.1% lower, underperforming the S&P 500, which fell 1.01% on the same day. The stock now trades 63.4% below its all-time high set in September 2025.
Heavy Capital Spending Strains Cash Flow
Oracle's fiscal 2026 capital expenditures reached $55.7 billion, more than double the prior year's $21.2 billion. Operating cash flow rose to $32.0 billion from $20.8 billion, but the spending surge resulted in a negative free cash flow of $23.7 billion, compared to a $0.4 billion deficit in fiscal 2025. Capital spending consumed roughly 83% of annual revenue and was 1.74 times operating cash flow.
The company reported a net capital cash outlay of $47.7 billion on a supplemental basis, reduced by $7.9 billion from financing activities and customer advances. Still, the outlay exceeded operating cash flow by $15.7 billion.
Backlog Growth and AI Demand
Oracle's remaining performance obligations (RPO) soared to $638 billion, up 363% from $138 billion in fiscal 2025. The backlog now represents 9.5 times fiscal 2026 revenue of $67.4 billion, which grew 17% year over year. Cloud infrastructure revenue surged 93% in the fourth quarter to $5.8 billion, underscoring strong AI-related demand.
To ease capital requirements, Oracle noted that $75 billion in hardware tied to major AI contracts was either prepaid or provided by customers, reducing the need for data center construction funding.
Funding and Ratings Pressure
In fiscal 2026, Oracle raised $43 billion in debt and $5 billion in equity, and it plans to secure approximately $40 billion more in fiscal 2027, including a $20 billion at-the-market equity program. The company stated it does not expect further debt offerings in calendar 2026.
On July 9, S&P Global Ratings (NYSE:SPGI) downgraded Oracle's long-term rating to BBB-, one notch above speculative grade, with a stable outlook. The agency cited increased business risk and softer cash flow. Tyler Richey, a technical analyst at Sevens Report Research, called the downgrade a “canary in the coal mine,” noting credit markets signaled concerns before the stock reacted.
Outlook and Risks
Oracle forecasts fiscal 2027 revenue of $90 billion and first-quarter cloud revenue growth of 58% to 64% in dollar terms. The company maintains a strong operating outlook, but risks remain. Accelerated contract activations and customer-funded equipment could help narrow the cash gap, while construction delays, poor contract outcomes, further downgrades, or equity dilution could pressure the stock.
For investors, the backlog is no longer sufficient. The next rerating hinges on AI-related cash flows matching capital expenditure. Oracle's 50-cent dividend is payable on July 24. Trading resumes Monday at 9:30 a.m. EDT.
