Oracle’s $553 Billion Question: Can Cloud Deals Justify a $125 Billion Debt Load?

Oracle’s stock is on a tear, climbing 14% in just five days and nearly 42% over the past year. This surge defies conventional wisdom, as the software giant is simultaneously posting explosive growth and amassing a staggering debt pile. The central question for investors is whether the company’s aggressive multicloud partnerships and AI push can generate enough cash to outweigh its soaring financial obligations.

The company’s recent performance offers compelling evidence for the bull case. Third-quarter revenue jumped 22% to $17.2 billion, with earnings per share of $1.79 surpassing Wall Street expectations. The cloud infrastructure segment is the standout, soaring 84% year-over-year and now contributing more than half of Oracle’s total revenue. This marks a decisive transformation from a traditional database vendor to a full-fledged cloud infrastructure player.

A key driver is Oracle’s open strategy of integrating with rival platforms rather than fighting them. A newly expanded partnership with Google Cloud will see Oracle launch an AI database agent for Gemini Enterprise, allowing users to query corporate data using natural language. Concurrently, the company is deepening ties with Amazon Web Services by establishing a private, high-speed network connection that bypasses Oracle’s own data transfer fees. This makes shifting workloads between providers significantly cheaper for customers, capitalizing on corporate reluctance to rely on a single cloud vendor.

This approach has filled Oracle’s order books to unprecedented levels. The remaining performance obligation, a measure of future revenue from contracts, exploded by 325% last quarter to $553 billion. Analysts at Guggenheim Securities call the stock “significantly undervalued,” pointing to this massive backlog and future cash flows from AI. CreditSights recently upgraded its recommendation to “Outperform.”

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

However, funding this ambitious expansion comes at an immense cost. Oracle’s long-term liabilities have ballooned to nearly $125 billion, driving interest expenses higher. The company’s free cash flow is deeply negative, pressured by colossal capital expenditures projected to reach roughly $50 billion for fiscal year 2026. This massive investment is aimed at building out the AI infrastructure needed to support new “Agentic AI” systems, which perform complex tasks in finance or supply chains with minimal human oversight. The addressable market for this technology is estimated to reach nearly $200 billion by 2034.

Risks are mounting alongside the debt. A class-action lawsuit filed in February alleges management misled investors about the feasibility of its AI investment strategy. Geopolitical tensions have also emerged, with an Oracle data center in Dubai reportedly drawing scrutiny from Iran’s Revolutionary Guards. The wide dispersion of analyst price targets—from $160 to $400—highlights the binary debate on Wall Street.

All eyes are now on Oracle’s upcoming fourth-quarter report, due in early June. It will provide the next critical data point on cloud momentum and the roadmap for future investments. The company must demonstrate that its expensive partnerships and open-architecture bets are beginning to justify the historic financial burden it has undertaken.