On Friday, Oracle Corporation’s (ORCL) credit risk indicators climbed to an all-time high, as market concerns intensified over its substantial cash consumption and the return on artificial intelligence investments. Investor sentiment came under further pressure, particularly after the unveiling of a new Chinese model seen as a potential competitor to offerings such as those from OpenAI. According to data from ICE Data Services, the cost of credit derivatives providing default protection on Oracle’s debt rose approximately 10 basis points on the day to 198.23, surpassing the previous record set on March 27 of this year.
Oracle is currently pouring massive amounts of capital into building data centers, and its free cash flow from operations has turned consistently negative. Last week, S&P Global Ratings downgraded Oracle’s issuer credit rating to BBB-, placing it just one notch above junk status. The agency acknowledged that it had previously underestimated the scale of upfront capital expenditure required for Oracle’s AI infrastructure. Within the Bloomberg U.S. High-Grade Corporate Bond Index, Oracle, with approximately $117 billion in bonds outstanding, stands as the largest issuer outside the financial sector.
Since announcing its cooperation agreement with OpenAI in September of last year, Oracle’s stock has largely trended downward. That transaction, valued at a total of $300 billion, drove the stock up 36% on the day of the announcement, significantly boosting market confidence. However, as time has passed, investors have begun to question whether OpenAI can fully meet its contractual obligations. By the end of fiscal year 2026 (ending May 31), Oracle had accumulated nearly $130 billion in borrowings for infrastructure construction, a heavy burden for a company with a book value of only $43 billion. As a result, the stock has fallen approximately 60% from its peak at that time.
That substantial pullback, however, has also altered Oracle’s investment thesis, particularly on the valuation front. The surge last September had pushed its price-to-earnings ratio to 76 times, as the market was willing to pay a rich premium for the OpenAI partnership outlook. But with the share price retreating and net income growing 37% in fiscal 2026, its current P/E has dropped to 22 times, notably below the S&P 500’s average of 32 times. Analysts expect continued profit growth, with the forward P/E further declining to 16 times. Despite its heavy debt load, the lower valuation has made the stock more attractive.
The profit growth has also been aided by the expansion of remaining performance obligations (RPO)—that is, the backlog of orders. At the time of the OpenAI deal announcement, it accounted for roughly two-thirds of Oracle’s $455 billion total RPO. If that transaction were to fall through in part or in full, it would undoubtedly be a significant setback for the business. But in the nine months since, its total backlog has grown to $638 billion, representing the addition of nearly $200 billion in new orders, roughly 60% of the size of the OpenAI deal. This incremental growth has helped justify its borrowing and the $56 billion in capital expenditures for fiscal 2026. The consistent ability to attract new business suggests that even if the OpenAI partnership were to change, Oracle’s core operations would still demonstrate considerable resilience.
Taken together, these factors lay a foundation for Oracle’s stock to double by 2028, or possibly even sooner. The current combination of low valuation and profit growth leaves its P/E well below the market median; if the stock does not rebound quickly, its forward P/E could fall to the mid-teens. At the same time, the rapid accumulation of backlog indicates that the market has overemphasized the OpenAI deal as a make-or-break factor, while the company’s actual business development capability has moved beyond that single dependency. Therefore, for investors who can tolerate its debt risk, Oracle offers a certain degree of medium-to-long-term appeal at its current price level.
