Don’t Use Oracle’s Troubles as a Gauge for Our Leading AI Stocks

Oracle’s stock took a severe hit on Thursday after the cloud‑software giant reported a miss on quarterly sales, delivered a weaker‑than‑expected outlook, and signaled a sharper rise in capital spending. The decline was amplified by investors’ concerns that management failed to address a critical question on Wednesday’s earnings call: whether OpenAI can honor its $300 billion, five‑year agreement to purchase AI‑computing power from Oracle. The silence, combined with the disappointing results, reignited doubts across the broader AI‑related equity space.

Although the Investing Club does not hold Oracle shares, the company’s role in the AI ecosystem is too material to ignore. A sizable portion of Oracle’s future revenue hinges on OpenAI’s ability to scale quickly enough to draw down the massive contract. When CNBC asked OpenAI CEO Sam Altman about Oracle, he sidestepped a direct answer, emphasizing that OpenAI’s growth depends on “more compute” and that the company is “optimistic” about its trajectory. Within hours, OpenAI announced a new model, underscoring the relentless demand for additional infrastructure.

Oracle’s own infrastructure ambitions are equally aggressive. The company lifted its full‑year fiscal‑2026 capital‑expenditure guidance to roughly $50 billion, up from $35 billion announced in September. By contrast, fiscal‑2025 capex stood at $21.2 billion. “Oracle has to be able to borrow to build,” noted Jim Cramer on Thursday’s Morning Meeting, adding that “they don’t have the kind of capital to do $50 billion.” The comment reflects a broader market fear that Oracle may be overextending its balance sheet.

The numbers reinforce that concern. Oracle reported fiscal‑2026 second‑quarter revenue of $16.06 billion, missing analyst estimates despite a surge in demand for AI‑infrastructure services. More striking was the free‑cash‑flow burn of nearly $10 billion—almost double the consensus forecast. Yet the company revealed a $69 billion addition to its remaining performance obligations (RPO) during the quarter, driving the RPO metric to $523 billion, a 430% year‑over‑year increase. RPO, a forward‑looking proxy for contracted revenue, now exceeds the combined Street revenue estimates for fiscal‑2027, ‑2028 and ‑2029, which total just under $388 billion.

Chief Financial Officer Doug Kehring attempted to calm debt‑related worries, saying Oracle has “a variety of sources throughout our debt structure in public bond, bank, and private debt markets,” and highlighted alternative financing options such as customers installing their own chips or suppliers leasing hardware. He stressed that these arrangements allow Oracle to “synchronize our payments with our receipts and borrow substantially less than most people are modeling,” while maintaining an investment‑grade credit rating.

From a strategic standpoint, Oracle’s challenges are largely financial rather than technical. The company is well positioned to capture the expanding AI‑compute market, especially as heavyweight players like Meta, Microsoft, Amazon, and now Disney commit billions to OpenAI’s ecosystem. Disney’s $1 billion investment and licensing of 200 characters for OpenAI’s short‑form video generator, Sora, illustrate how content creators are integrating generative AI, further inflating demand for compute resources.

For investors, the key takeaway is that the AI trade remains fundamentally sound, even if Oracle’s stock experiences short‑term volatility. The broader AI infrastructure demand is real and growing, favoring firms that can fund their expansion without jeopardizing balance‑sheet health. Companies with strong free‑cash‑flow generation—such as Microsoft, Amazon, Meta and Disney—are better equipped to meet their capital commitments and stand to benefit from the inevitable surge in AI compute capacity.

Consequently, while sentiment may weigh on AI‑related equities after Thursday’s Oracle miss, the underlying growth story persists. A prolonged weakness in any of the sector’s leading names could present a buying opportunity for disciplined investors.