Inside Oracle’s Cash-Burning Engine: Record Demand, a $3 Billion Deal That Got Away, and a $40 Billion Capital Plea

For a company sitting on a $638 billion backlog — the largest in its history — Oracle is facing a cash crisis that has knocked its stock more than 40% below its 52-week high. The cognitive dissonance between the company’s explosive cloud demand and the eye-watering cost of servicing it has become the defining narrative for investors.

That tension was laid bare this week on two fronts: a failed multibillion-dollar deal with Microsoft linked to a security certification gap, and a quarterly report that showed capital expenditure racing far ahead of cash generation. Together, they paint a picture of a company that has won the future but is struggling to pay for the present.

A $3 Billion Deal Derailed by a Compliance Gap

Business Insider reported that Microsoft walked away from negotiations with Oracle to rent cloud infrastructure worth more than $3 billion. The reason given: Oracle’s public cloud lacks FedRAMP authorization — the security framework required by US federal agencies for handling government data. While Oracle’s Government Cloud carries the certification, its mainstream public cloud does not, and an Oracle manager acknowledged that bridging the gap would require substantial development work.

Oracle pushed back hard, calling the report’s details inaccurate and insisting that Microsoft remains both a partner and a customer. Microsoft itself declined to comment. Still, the episode highlights a structural vulnerability. Amazon Web Services and Google Cloud already meet FedRAMP standards in their public clouds, giving them a clear edge when hyperscalers like Microsoft look for external capacity to handle surging AI demand.

The compliance issue is not absolute, however. Oracle recently won a nearly $400 million contract with the US Office of Personnel Management for its FedRAMP-certified Fusion Cloud HCM platform. But when it comes to pure infrastructure deals, the calculus appears different — and potentially costly.

A Record Quarter Masked by a $23.7 Billion Cash Bleed

The compliance stumble came right on the heels of a blockbuster quarter. In its fiscal fourth quarter, Oracle posted $19.2 billion in revenue, up 21% from a year earlier. Cloud infrastructure revenue surged 93%, and full-year fiscal 2026 sales reached $67.4 billion.

But the operating numbers tell only half the story. Capital expenditure hit $15.9 billion in the quarter and $55.7 billion for the full year — well above the company’s own forecasts. While operating cash flow climbed to a record, free cash flow cratered to negative $23.7 billion. That red ink has fundamentally changed the conversation: it is no longer just about growth, but about how that growth is being funded.

Should investors sell immediately? Or is it worth buying Oracle?

Oracle raised $43 billion in debt and $5 billion in equity over the past fiscal year, and it is now planning another $40 billion capital raising through a mix of debt and equity. CFO Hilary Maxson has guided for net capital spending of roughly $70 billion in fiscal 2027, even after accounting for customer prepayments. The message to shareholders is clear: the spending spree is far from over.

The Backlog Dependency That Worries Analysts

The massive outlays are not reckless — they are responding to real, contracted demand. In the fourth quarter alone, four customers signed contracts each worth more than $8 billion. But that demand is dangerously concentrated. Analysts estimate that roughly $300 billion of Oracle’s $638 billion backlog is tied to OpenAI alone, making nearly half the order book dependent on a single counterparty. Morningstar has flagged this as a genuine risk.

At $159.26 (the stock dipped 2.3% following the compliance headlines), Oracle shares now trade 43% below their September peak of $280.70 and have lost about 12% over the past year. The relative strength index sits at 43.3, signaling no momentum. Yet analysts remain bullish: the average target of $220.52 implies upside of more than 38%, and 36 of 43 experts rate the stock a buy. The chasm between professional forecasts and market sentiment has rarely been wider.

A Race Against the Capacity Clock

Management is sticking to its long-range targets. For fiscal 2027, Oracle expects revenue of $90 billion and adjusted earnings per share of $8.05, an 18% increase. The first-quarter outlook calls for revenue growth of 27% to 29% and adjusted EPS of $1.72 to $1.76.

The bull case rests on a physical promise. Oracle recently deployed more than 1.2 gigawatts of computing capacity, and it plans to bring nearly another gigawatt online in the current quarter alone — roughly matching the entire prior year’s output in just three months. Revenue follows capacity, so if this buildout stays on schedule, free cash flow could flip dramatically from negative to positive.

For now, buying Oracle stock is a bet on flawless execution: translating a $638 billion backlog into profitable cloud growth while keeping capex in check. Succeed, and the free cash flow inflection could reshape the investment case. Slip, and the $40 billion capital raising may be only the first of several dilutive rounds.