Oracle (ORCL) stock sold off again following an already steep ~35% decline in the months leading up to last week’s Q2 FY26 earnings call. While the report came with some baggage, the underlying results were broadly strong, highlighted by accelerating AI and cloud growth and an enormous contracted backlog that provides long-term visibility. Investor sentiment, however, remains weighed down by concerns about elevated AI-related capital expenditures (capex) and a heavier debt load.
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Even so, over the next six months, the risk/reward appears skewed to the upside, before a potential broader AI or market-wide de-rating takes hold. Oracle is undeniably a higher-risk setup—but that elevated risk is precisely what makes the upside opportunity compelling.
Oracle’s Earnings Were Strong Despite Market Pessimism
In Q2 26, Oracle’s revenue grew by 14% year-over-year, while cloud revenue was up by 34% year-over-year; incredibly, the company’s remaining performance obligations were up 438% year-over-year, which is almost 9x trailing 12-month revenue. Compared with Fiscal 2025, where revenue was up 8% year-over-year and cloud services were up 12% year-over-year, Q2 26 was a strong quarter for Oracle.
However, the stock declined by 15% after the earnings release, with approximately $70–90 billion in market capitalization wiped out. This was primarily due to Fiscal 2026 AI/data-center capex being raised by approximately $15 billion relative to the September guide, which targeted roughly $50 billion. As a result, the bond/credit markets have repriced ORCL’s risk to a higher level. With the company’s long-term debt now up to about $100 billion, it’s no surprise parts of the market are wondering if the AI “arms race” is sustainable.
The company’s $523 billion backlog is substantial but remains below market expectations and is closely tied to other large technology firms, particularly OpenAI. I wouldn’t say it’s irrational to wonder whether OpenAI has overcommitted in its capex deals, and, in the base case, we may see these deals renegotiated to lower values in the medium term. That could lead to valuation multiple compression for ORCL stock, but the long-term growth trajectory will still stay stable.
Despite a High Valuation, I Spot a Sentiment Trade
Oracle has a forward P/E of about 33, which is just higher than the sector median of 31.5. But when you look at the company’s forward growth, that looks cheap. The forward PEG ratio is 35% below the sector average, indicating that the stock is priced cheaply relative to its growth. In fact, the consensus view on Oracle’s long-term EPS growth is that it will compound at 23.4% year over year, compared with just 15.5% for the sector. To me, that makes the current valuation a bit of a bargain.
The question on the market’s mind is whether we will face bottlenecks, such as energy shortages, and whether the aggressive pace of buildout will remain steady amid consumer and enterprise demand. There are so many variables at play that it’s challenging to make a sure bet. That said, the long-term trend definitely appears to be up. Research from McKinsey shows that by 2030, data centers are projected to require $6.7 trillion worldwide to keep pace with the demand for computing power.
So, while concerns about an AI bubble and overcapacity are logical, I’m leaning on the fact that many experts believe the constant cycle of new, more complex AI models and hardware will make AI capex structurally recurring rather than a one-time boom. In other words, being afraid of AI and not investing is probably the bigger risk than being involved—this could be the biggest boom in history, especially when robotics comes online in full.
That said, from a purely sentiment perspective, the aggregate valuation of the S&P 500 (SPX) and Nasdaq 100 (NDX) could be somewhat high, introducing risk that makes participation in the AI arena more risky than one would like.
For example, the Buffett indicator, which is the total U.S. stock market value divided by gross domestic product, is 232.5%—that’s higher than during the dot-com boom. Even if AI stocks aren’t overvalued, the index and the American economy as a whole are. That suggests the whole market may be due for a correction if AI growth slows substantially in the years ahead and broader industries don’t experience a meaningful margin uplift from autonomous technology.
What Is the 12-Month Forecast for ORCL Stock?
On Wall Street, Oracle has a consensus Moderate Buy rating, based on 23 Buys, 11 Holds, and one Sell. The average ORCL price target is $298.43, which indicates just over 57% upside over the next 12 months.
Although the investment is one of the higher-risk positions due to fragile sentiment at the moment, it’s also arguably a time to be greedy when others are fearful. I, for one, am holding my stake through the debt-backlog storm and keeping my eye on the great growth ahead.
High-Growth Fundamentals Support Contrarian Valuation
Oracle stock has the growth profile to support its seemingly elevated valuation—something many other parts of the market lack, where prices reflect an assumption of American exceptionalism without the underlying fundamentals to justify it.
With EPS expected to grow at a robust 23.4% annual rate over the next several years, a massive $523 billion backlog that provides long-term revenue visibility, and a forward PEG ratio that sits roughly 35% below the sector average, Oracle stands out as a rare combination of scale, growth, and relative valuation support. In a market crowded with expensive narratives, this is a genuinely contrarian Buy that I can support with absolute conviction.