Ten months ago, Oracle (ORCL) was one of Wall Street’s most dazzling artificial intelligence winners. Investors were betting that its cloud infrastructure business would play a core role in supporting AI workloads, driving the stock to all-time highs and propelling co-founder Larry Ellison’s personal net worth past the $400 billion mark for a time. Today, however, the picture is drastically different. Oracle’s share price has plunged more than 50% from its peak, Ellison’s fortune has evaporated by approximately $213 billion, and the stock currently sits at levels not seen since April 2025.
Demand for Oracle’s cloud infrastructure remains robust, with the company continuing to sign large contracts and expand data center capacity. At the end of its fiscal year ending May 31, 2026, remaining performance obligations reached a record $638 billion. The issue lies in the enormous cost of building AI data centers—capital expenditures for fiscal 2026 exceeded $21 billion, far higher than the roughly $7 billion of the previous year, and management projects spending will surpass $25 billion in fiscal 2027. Whether these investments can generate substantial returns quickly enough to support the mounting costs has become a core concern for investors. S&P Global Ratings downgraded Oracle’s credit rating to BBB-, just one notch above junk status, further exacerbating market unease, as a lower rating means higher borrowing costs, making the capital-intensive expansion strategy increasingly expensive.
Despite the fierce sell-off, Oracle’s underlying business has not collapsed. The cloud infrastructure segment remains one of the company’s fastest-growing divisions, and the AI industry’s demand for computing power continues to outstrip supply. Oracle has carved out a distinctive competitive strategy—rather than competing head-on with Amazon (AMZN) AWS, Microsoft (MSFT) Azure, and Google Cloud, it has increasingly strengthened its collaborations with them. This approach has broadened its market reach while reinforcing its dominant position in the enterprise database space. The massive backlog of cloud contracts also provides significant revenue visibility for years to come.
For those seeking a quick rebound in the next quarter, Oracle may not be the right fit. Market sentiment has clearly deteriorated, and concerns over AI infrastructure spending will not dissipate overnight. However, for investors with longer investment horizons, the stock is worth watching. Management is making hefty investments based on the judgment that AI infrastructure demand will sustain multi-year growth. If that prognosis proves correct, the current high spending could translate into significantly higher cloud revenue and cash flow. Of course, risks remain—if enterprise AI adoption slows, Oracle could face the predicament of its multi-billion-dollar infrastructure investments taking longer than expected to generate returns.
The U.S. Department of Defense announced on Thursday that it had entered into an enterprise-wide software agreement with Oracle valued at nearly $7 billion over a maximum term of 10 years. The negotiation was led by the Department of the Navy and aims to consolidate fragmented software licenses across Defense Department components, the Coast Guard, and the intelligence community. The agreement has a base term of five years, with an option for a five-year renewal, covering perpetual and subscription licenses, maintenance, and consulting services. The Department of Defense’s Chief Information Officer stated that the move will save taxpayers at least $441 million. In May of this year, the Defense Department reached a similar agreement with Microsoft. This large contract provides Oracle with a significant government business endorsement. Despite this, Oracle’s stock has declined 38% year-to-date, weighed down by concerns that the rise of AI is eroding the growth prospects of its traditional software business, even as the company takes on tens of billions of dollars in debt to build out AI data centers on a massive scale. The latest quarterly data shows software revenue fell 2% year-over-year, but cloud revenue surged 47% year-over-year, benefiting from providing AI computing power to clients such as OpenAI.
