Oracle Corporation (NYSE:ORCL) is down about 33% so far this year. Yet it was in two major billionaire portfolios, and it ranks seventh on our list of 7 AI stocks billionaires Ken Fisher and Paul Tudor Jones were buying. That raises the question: is the stock a buy before it rebounds?
Why Oracle Stock Has Fallen
Investors worry about how much Oracle spends on AI data centers. Management guides to capital spending about equal to its expected revenue for fiscal 2027, and free cash flow was negative in the first quarter. Oracle also issued new stock during the quarter and has borrowed heavily to fund the build. A big share of its contracted backlog comes from OpenAI, which ties Oracle’s results to one customer. Analysts still rate the stock a buy on average, and we covered why most of them stay bullish after the drop.
Bull Case
Oracle has revenue lined up for years because customers have signed contracts for AI computing power that Oracle has not delivered yet. Management expects about half of that backlog to turn into sales over the next 36 months. Oracle said its latest AI contracts would not increase its planned capital-raising requirements, while customer prepayments and customer-supplied hardware have helped reduce its funding needs. Demand for AI computing power is running ahead of supply across the industry. Microsoft’s Azure cloud grew 43% in its latest quarter, and customers want more capacity than the company can supply, which we covered in our look at whether Microsoft’s AI spending is paying off. Alphabet’s Google Cloud backlog is up 385% from a year ago, and we covered why investors still like the stock despite the AI search threats.
Oracle also owns the database software that large companies already run, which gives its cloud a way into those customers. BNP Paribas’ latest software reseller survey showed demand for Oracle’s database on Amazon’s and Microsoft’s clouds rising into the top three products by demand, BNP Paribas analyst Stefan Slowinski said in a note. Zurich-based Emerald Wealth Partners also wrote about Oracle and the impact of AI on the software sector in its first-quarter 2026 investor letter, and we covered what the firm said. The number of hedge funds holding Oracle rose to 119 in the second quarter from 115 in the first, according to Insider Monkey’s database.
Bear Case
Oracle expects its capital spending to roughly match its annual revenue in fiscal 2027. If OpenAI’s growth slows or a data center opens behind schedule, Oracle keeps burning cash and has to borrow or sell more stock. Higher interest rates make that financing more expensive, and the whole industry leans on credit. Nvidia, for example, lined up large lenders to finance its customers’ data centers, which we covered in our look at whether the stock has room to run. Cloud infrastructure also earns lower margins than software, so profit can grow slower than revenue.
Valuation
Oracle looks cheap on earnings. It trades at a forward P/E of about 15.9 on normalized earnings, below its five-year average of about 22.1 and the technology sector median of about 21.5. Its forward PEG ratio, which divides the P/E by earnings growth, is about 0.53 against a sector median of about 1.14. The stock looks cheap because the price fell about 33% this year while analysts’ full-year earnings estimates held up. The fiscal 2027 estimate is $8.14 per share, up from $8.05 three months ago, and the fiscal 2028 estimate is $10.99, up from $10.92.
Near-term growth looks slow. Analyst consensus has earnings per share down 16% in the November quarter, up 13% in the February quarter, and up about 7% for fiscal 2027.
A value trap usually has a low P/E because earnings are about to fall. Analysts expect Oracle’s earnings to rise. The risk is the cash. Free cash flow is negative, and Oracle is borrowing and issuing stock to pay for the build, so the 35% jump in fiscal 2028 has to absorb higher interest and depreciation costs. If fiscal 2028 earnings grew only half as fast as analysts expect, the forward P/E would still be about 13.5. On sales, the stock looks expensive, at a forward enterprise value to sales of about 5.9 against a sector median of about 3.4, because profit lags revenue.
While we acknowledge the risk and potential of ORCL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORCL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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