Oracle reports a historic backlog of future commitments worth $638 billion, but its free cash flow has entered negative territory. The company has initiated a financing package of nearly $50 billion, which includes a $20 billion capital increase.
Oracle has managed to accumulate an unprecedented order backlog valued at $638 billion, but the market punishes its growth strategy. The tech company has seen its free cash flow turn negative while financing an aggressive expansion in the cloud. To sustain this pace, Oracle has launched a financing package of nearly $50 billion, which includes a $20 billion capital increase.
Oracle's shares have lost 31% in the last 30 days and are trading around €122.98, dangerously close to its 52-week low of €114. Investor distrust is explained by the gap between the large backlog and its conversion into actual revenue. Orders have surged by 363% year-on-year, largely driven by partnerships with AI giants like OpenAI.
The cash flow dilemma and shareholder dilution
Oracle's transformation from a profitable software provider to an infrastructure-intensive operator requires unprecedented capital expenditure. Free cash flow has turned negative, forcing the company to seek financing in both the debt and equity markets. The $20 billion capital increase threatens to dilute the value of current shareholders, a fear that weighs on the stock price.
Additionally, there is the risk of customer concentration. A large portion of the orders comes from a few AI companies, such as OpenAI. If these giants reduce their spending, Oracle's long-term projections would be shaken. Although only a small part of the backlog will materialise into billing over the next twelve months, the rest is subject to multi-year contracts and the completion of data centres that are still under construction.
The cloud business grows 93% and analysts remain optimistic
On the optimistic side, proponents of the bullish thesis point to the explosive growth of the cloud business, which advanced 93% in the last quarter. Furthermore, Oracle has closed deals with Amazon, Microsoft, and Google to facilitate access for its corporate clients, and is expanding its presence in the European market by hiring 1,500 specialists, paving the way for lucrative government contracts.
The RSI indicator is around 29, indicating that the stock is technically oversold. Analysts set a median target price of €220.74, well above the current level. The bet on sovereign cloud and cybersecurity adds an additional layer of optimism.
Next steps: bond issuance and quarterly results
Looking ahead, the pressure is on the corporate bond issuance that Oracle plans to launch in the coming weeks. A successful placement with low interest rate spreads would demonstrate the confidence of institutional investors. If cloud growth exceeds 90% again next quarter, the stock could find a floor. The 52-week low, around €114, acts as the last support.
If management expands the buyback programme or issues more shares, current shareholders could suffer further losses. The annual volatility of 68% reflects the extreme nervousness surrounding a stock caught between a record revenue horizon and a cash-strapped present.
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