Oracle (ORCL) has emerged as one of the most heavily shorted stocks among hedge funds in the first half of 2026, as concerns over massive AI capital spending and high leverage continue to weigh on sentiment. Yet with the stock down more than half from its all-time high, a growing number of Wall Street analysts still rate it a buy, raising the question of whether a contrarian opportunity is forming.
According to the Data Insights Crowding Report, Oracle was among the most shorted stocks in the first half of 2026, with only Charter Communications and Super Micro Computer seeing heavier short positioning. That indicates a large number of investors were betting on further share-price declines.
Oracle’s stock has been extremely volatile over the past 12 months. Strong earnings and a rapidly expanding order backlog pushed shares to a record high last summer. By the end of its fiscal year in June, remaining performance obligations reached $638 billion, including a $300 billion cloud computing agreement with OpenAI and infrastructure partnerships with Nvidia, Microsoft, AMD, and Meta. The stock closed at an all-time high of $324 on September 10, 2025, but now trades around $153—a decline of more than 50%.
The sharp pullback stems largely from enormous capital expenditures. Oracle spent $21 billion on capex last year and $55 billion in fiscal 2026, resulting in negative free cash flow of $23.7 billion for the fiscal year. The company also plans to raise another $40 billion through debt and equity financing in fiscal 2027 to fund continued infrastructure buildout. Total debt has climbed to $167 billion, with a debt-to-equity ratio of 388%. At the same time, investors remain concerned about OpenAI’s financial health and its ability to fulfill contracts, while broader skepticism persists over whether AI infrastructure spending will generate adequate returns.
Despite these negatives, valuation has returned to more reasonable levels. Oracle trades at a price-to-earnings ratio of 25, a forward P/E of 18, and a five-year PEG ratio of 0.85. A PEG below 1 typically suggests the stock may be undervalued relative to expected earnings growth.
Wall Street analysts remain broadly optimistic. Around 82% rate Oracle a buy, with a median price target of $241, implying roughly 57% upside over the next 12 months. That outlook is supported by a strong order backlog, continued expansion in cloud infrastructure demand, and the potential for valuation recovery.
Nevertheless, Oracle still faces significant uncertainty. Heavy AI spending and a mounting debt load will eventually need to be addressed, which could pressure earnings over the medium term. Short-term short-selling pressure may also increase volatility. For long-term investors, there may be AI stocks with stronger balance sheets and healthier cash flow profiles. Whether Oracle can transform from a heavily shorted name into a genuine contrarian opportunity will depend on the pace of return on its capital expenditures, its ability to manage debt, and the quality of earnings improvement in its core cloud business.
