Oracle (ORCL) shareholders who got excited last quarter by the boom in backlog—Remaining Performance Obligations (RPOs), widely seen as a signal of explosive demand for the company’s cloud business—have had their tails between their legs ever since. After hitting all-time highs of $308 per share in September, the stock has fallen roughly 35%, including double-digit drops following the most recent Fiscal Q2 results.
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Although Oracle beat EPS estimates, it missed on revenues. If three months ago the market seemed willing to ignore any nuance in the name of the AI and hyperscaler cloud narrative, the contrast this time is striking. Solid operating results were met with strong risk aversion, suggesting that the issue is not necessarily execution, but rather a growing mismatch between expectations, valuation, and capital intensity.
In my view, much of the recent sell-off also exposes the excessive optimism embedded in ORCL’s price after the Q1 RPO surge, particularly given the need to fund this demand through debt-backed investments rather than internally generated cash flows, unlike other major hyperscalers. As a result, even though Oracle just delivered what would normally be considered a “good quarter,” that is no longer enough in a market increasingly focused on CapEx discipline, balance-sheet risk, and the ultimate returns on those investments.
Against this backdrop—and with the transition narrative likely to bring above-average volatility while offering little valuation advantage versus other hyperscalers trading at similar multiples—I believe the prudent stance for now is to remain Neutral and monitor the thesis from a distance.
A Solid Quarter That Changed Very Little
Oracle’s most recent results—referring to Fiscal Q2—once again reinforced that the underlying business is executing extremely well, which has been the consistent theme throughout the year.
In that context, Oracle’s Cloud Infrastructure (OCI) revenue accelerated 68% year over year, up from 54% YoY growth last quarter, while Cloud Applications remained resilient, growing 11% despite ongoing competitive headwinds in the SaaS market. Total revenue increased 13% YoY, while operating income and operating cash flow expanded meaningfully, rising 8% YoY in constant currency (with 42% non-GAAP margins) and 10% YoY, respectively. Meanwhile, backlog (RPO) climbed again to $532 billion, largely reflecting multi-year hyperscale demand.
In other words, Oracle has done precisely what was expected. OCI has reached the scale of a credible hyperscale platform, large customers continue to make long-term commitments, and the company has increasingly positioned itself as an AI-agnostic infrastructure provider, rather than a chip designer. The caveat is that none of these numbers are surprising anymore, especially after the September RPO shock, which pulled years of optimism forward into the stock price—sending shares from roughly $223 to $328 in short order.
When Growth Meets a Capital Wall
Even so, the sharp sell-off following what was, on paper, a “good” quarter reveals what the market is really focused on in Oracle’s thesis: capital intensity.
Growth still matters—there’s no question about that—but in the current context, Oracle has entered uncharted territory for its business model. That shift raises legitimate questions about whether the company’s growth trajectory can remain consistent given the massive investment now required to fund it.
To put this into perspective, capital expenditures (CapEx) totaled $35.5 billion over the trailing four quarters, the highest level in Oracle’s history and equivalent to roughly 80% of company revenues. At the same time, FY26 CapEx guidance was lifted toward $50 billion, while net debt climbed to approximately $88 billion, even after asset sales and modest dilution—making Oracle the only major hyperscaler actively relying on leverage to fund its infrastructure build-out.
There’s no doubt that $532 billion in RPO is a massive figure, but its conversion is inherently slow, given long-term contracts that often span five to ten years and the need to build infrastructure before revenue can be recognized. As a result, this growth is not only capital-hungry but also comes with an ultimate return on investment that remains unproven at this scale. Against that backdrop, digesting a modest sequential RPO increase after a 359% jump last quarter was always going to be difficult. The market, at this point, is clearly hypersensitive to anything that challenges the AI hyperscaler narrative.
Cheaper Does Not Mean Cheap
After falling more than ~40% over the past three months, it is tempting to argue that Oracle’s valuation is now “de-risked.” Context, however, matters a great deal. Even after the sell-off, the stock still trades at 28.8x non-GAAP earnings—roughly 30% above its purely SaaS average over the past five years—while GAAP margins remain structurally lower post-Cerner (acquired in 2022). On top of that, cash flow visibility is heavily clouded (no pun intended) by an unprecedented level of reinvestment into AI-driven cloud infrastructure.
This is before even considering the growing influence of political and strategic factors on capital allocation decisions. At the same time, Oracle’s Cloud Infrastructure business continues to grow rapidly, and demand shows no signs of slowing, reinforcing the company’s strong long-term competitive position.
As a result, Oracle currently sits in an uncomfortable middle ground where bullish long-term fundamentals, bearish short-term valuation discipline, and extreme sentiment swings all coexist.
Is Oracle a Buy, Sell, or Hold?
On Wall Street, optimism still dominates the outlook for Oracle, even as skepticism has picked up and several analysts have trimmed their price targets following the Q2 earnings release. Over the past three months, 34 analyst ratings have been issued: 22 Buys, 11 Holds, and just one Sell. The average price target stands at $302.10, which implies a potential upside of ~52% over the coming 12 months.
Strong Execution, Recalibrating Valuation, and a Sensible Hold
Oracle’s thesis post-Q2 selloff does not scream bargain, nor does it show any signs of a breakdown. The business case remains intact and compelling, much as it did in the previous quarter, but the stock has clearly become detached from its underlying fundamentals. The recent sell-off has brought some anchoring back, yet the shares remain heavily influenced by near-term outcomes, particularly concerns around capital intensity, balance-sheet optics, and overall market sentiment.
As a result, I believe the most logical stance on Oracle at this stage is Hold. Investors should respect the company’s execution while also acknowledging the risks—especially by avoiding the temptation to force a valuation call as the market continues to recalibrate what Oracle has truly become. At this point, the company is no longer being judged as a mature enterprise software vendor, but rather as a leveraged infrastructure build-out story.