Oracle: The AI Darkhorse?

Between spring and summer of last year, Oracle (ORCL) stock nearly tripled as maverick founder and CEO Larry Ellison laid everything on the line to join the AI race. The stock surged from under $130 to $346 on a wave of Stargate announcements, hyperscaler partnerships, and Ellison’s unmistakable conviction that this was the moment to go all-in. Yet in the months since last fall shares have collapsed more than 50%.

Was this just a flash in the pan, an aging tech giant’s last-ditch effort to ride the AI wave before it crested? Or is the market misunderstanding Oracle’s genuinely advantaged position in the most important infrastructure buildout of a generation? I believe it’s the latter. And if that’s correct, Oracle may be one of the best asymmetric opportunities in the equity market today.

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A Strong Earnings Report Gives ORCL Stock a Boost

Earlier this week, Oracle reported fiscal Q3 2026 results that were, by any measure, exceptional. Total revenue rose 22% year-over-year to $17.2 billion, with cloud revenue surging 44% to $8.9 billion. Cloud infrastructure revenue, the segment most directly tied to the AI buildout, grew 84% to $4.9 billion, accelerating from the 68% growth posted the prior quarter. Non-GAAP EPS came in at $1.79, up 21%, beating consensus estimates. Management noted this was the first quarter in over fifteen years where both organic total revenue and non-GAAP EPS each grew 20% or more.

Perhaps the most staggering figure was remaining performance obligations (RPO), essentially contracted but not yet recognized revenue, exploded to $553 billion, up 325% from a year ago and $29 billion sequentially. This is a backlog that dwarfs the company’s $67 billion in expected FY2026 revenue by a factor of more than eight. Management also raised FY2027 revenue guidance to $90 billion, implying roughly 34% growth, pace that would have been unthinkable for Oracle even two years ago.

Leading AI Stocks Have Received No Love for Months

In recent months, investors have broadly punished the companies pouring tens of billions into AI infrastructure. The Magnificent Seven stocks have faced headwinds from AI capex skepticism, and Oracle has been beaten down even worse.

But the comparison to the Magnificent Seven obscures a critical distinction. Companies like Amazon (AMZN), Microsoft (MSFT), and Meta Platforms (META) have somewhat delicately managed their AI spending to protect margins and quarterly earnings trajectories. They are investing, but they are doing so in a way that keeps Wall Street a bit more comfortable, as capex is rising, but profitability is being maintained.

Oracle has taken the opposite approach. Under Ellison’s direction, the company has been unconcerned with deftness, pouring capital into data center buildouts at a pace that exceeds its own operating cash flow. In the first nine months of FY2026, Oracle spent $39.2 billion in capex against $17.4 billion in operating cash flow. On a trailing four-quarter basis, free cash flow has plunged to negative $24.7 billion. The company raised $30 billion in debt and equity financing in February alone, and total debt now exceeds $134 billion.

Wall Street hates this negative free cash flow, rising leverage and margin compression as it appears reckless. But context matters enormously here. Ellison is executing what may be a calculated land grab, investing in physical AI infrastructure with the conviction that first-mover scale will generate durable competitive advantages and possibly extraordinary future cash flows. This is the kind of move that looks terrible on a trailing basis and potentially brilliant on a forward one.

Ellison also has a special advantage (or disadvantage depending on how you think). At 40% of shares outstanding, he has the most skin in the game compared to the other tech founders. Meta Platforms owner Zuckerberg holds 15%, Musk owns less than 20% of Tesla and Bezos is down to just 8% of Amazon. Ellison has been taking large and contrarian bets for almost 50 years with his company, so his big moves aren’t unprecedented. He has experience in this game of epically high stakes.

Oracle Stock Caught in Multiple Weak Themes

Part of why Oracle stock has been dragged down so far is its exposure to two key themes that have suffered significant drawdowns in recent months. As we noted, former leaders in the AI infrastructure trade have been hit hard as investors question the returns on massive capital spending programs. More recently, software stocks have also come under severe pressure as worries about AI disruption shook investor confidence across the sector. That said, Oracle's growing debt load, speculative investments in AI infrastructure, and occasionally dubious business partnerships haven't helped either.

The selloff in these themes appears to have reached the point of being indiscriminate, however, and in software especially, the selling looks like it may be nearing exhaustion. Select names in the sector, as well as Magnificent Seven leaders like Amazon and Meta Platforms, are trading at some of their most appealing levels in years.

Among large-cap, AI-adjacent stocks, Oracle stands out as one of the most attractive at current levels. At roughly 21x forward earnings, with long-term EPS growth above 19%, sales projected to grow nearly 17% this year and 32% next year, and $553 billion in contracted future revenue, the fundamental setup is compelling to say the least.

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Should Investors Buy Shares in ORCL?

The opportunity is not without risk. The quality of that half-trillion-dollar backlog of contracted future revenue remains to be seen, the considerable debt taken on adds a degree of uncertainty, and of course, the enormous projections for AI industry growth are still very much up in the air, though all available data continues to point to demand outstripping capacity.

That said, Oracle at current levels offers a rare combination: a company growing revenue north of 20%, an infrastructure business scaling at hyper-growth rates, a half-trillion-dollar contracted backlog, and a controlling shareholder with more skin in the game than arguably anyone in the market, all trading at a discount to the software sector it's being lumped in with. The market is pricing Oracle as a software company being disrupted by AI but it is actually the company building the infrastructure for it. That disconnect could be the opportunity.

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This article originally published on Zacks Investment Research (zacks.com).

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