Oracle (NYSE:ORCL) is sitting on a pile of signed business most companies can only dream about: $664 billion in remaining performance obligations (contracted revenue not yet recognized) at the end of fiscal Q1 2027. Yet the market keeps treating the stock like a question mark, attracting retail attention similar to the favorites found on our rundown of 10 Cheap Stocks That Will Go to the Moon According to Reddit as shares recently slid alongside other AI names after a report on OpenAI’s revenue, according to CNBC.
For decades, Oracle made its money selling database software and the business applications that run on top of it, from finance to HR. Today, the growth engine is Oracle Cloud Infrastructure (OCI), which rents out computing power, much of it to companies training and running AI models.
The real question is which matters more: the backlog, or the bill for delivering it. The answer hinges on one line of the cash flow statement that’s currently in the red.
The Database Toll Booth
Oracle’s edge starts with switching costs. Its databases sit underneath banking systems, airline reservations, and government records, and ripping one out is slow, risky, and expensive. That installed base gives Oracle a natural audience for its cloud pitch.
The applications side shows the steadier half of the business. Cloud applications revenue reached $4.2 billion in fiscal Q1 2027, up 10%. That’s not flashy, but it’s recurring software revenue that tends to stay put once it’s in place, securing Oracle’s standing among the 10 Best Cloud Computing Stocks to Buy According to Billionaires.
Demand Is Outrunning Supply
Infrastructure is where the story shifts gears. OCI revenue hit $7.4 billion in fiscal Q1 2027, up 121%, while total cloud revenue climbed 62% to $11.6 billion. Total revenue rose 30% to $19.3 billion.
The backlog explains why management keeps leaning in. RPO grew by $209 billion year over year, and Oracle booked more than $30 billion in new AI cloud contracts during the quarter. The company says demand for AI training and inferencing is running ahead of the capacity it can supply, even after delivering more than 300,000 GPUs to AI cloud customers since the end of fiscal Q4.
Guidance points the same way. Oracle expects fiscal Q2 cloud revenue growth of 65% to 71% in dollars, and full-year revenue of at least $90 billion. On the infrastructure side, the moat looks like it’s widening, though it’s a race specialist AI cloud providers like CoreWeave are running too.
Can Oracle Afford Its Own Success?
The worry investors keep circling is cost. Capital expenditures reached $28,499 million in fiscal Q1 2027, and free cash flow came in at negative $5 billion. Oracle also completed a $20 billion common stock sale through an at-the-market program (selling new shares gradually into the market), which dilutes existing holders.
Then there’s concentration. The recent slide tied to OpenAI’s revenue shows how tightly the market links Oracle to the health of the biggest AI spenders.
Operating cash flow was $23 billion, up 184%, and management attributes the negative free cash flow to cloud infrastructure investment rather than a weakening core. Still, contracted revenue only turns into cash once the data centers are built and customers pay. If you own the stock, that’s the risk worth watching.
A Discount Built on Doubt
Oracle trades at a forward P/E of 17.37, as of October 9, below both its 5-year historical average of 22.13 and the sector’s 23.35. Put simply, investors are paying less for each dollar of expected earnings than they typically have over the past five years.
And growth is the whole point. Expected EPS growth stands at 35.11% for 2028. Oracle’s own guidance calls for fiscal 2027 non-GAAP EPS of $8.10, after fiscal Q1 non-GAAP EPS rose 30% to $1.92. This piece leans on non-GAAP figures because that’s how Oracle guides, though GAAP EPS rose even faster, up 55% to $1.56.
The discount reflects the cash question, not the demand question. Investors seem to want proof that today’s spending becomes tomorrow’s free cash flow before they pay a typical multiple. That caution stands out next to hype-heavy names featured among the 11 AI Stocks That Will Go to the Moon, where the market debate tends to center entirely on raw growth rather than capital funding.
Big money hasn’t backed away, either. Hedge fund interest ticked up, with 119 funds holding the stock in the most recent quarter, up from 115 in the prior one. Short interest sits at 2.73% of the float, a sign of relatively limited bearish positioning.
Paying for Proof
At 17.37 times forward earnings, Oracle is priced as if its $664 billion backlog comes with an asterisk. With triple-digit OCI growth and guidance for at least $90 billion in revenue, that discount looks more like caution about funding than a judgment on the business itself. The setup suits patient investors who can sit through AI-headline volatility. Free cash flow staying deeply negative for several more quarters, or another round of share sales before the new capacity pays off, would change that picture.
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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