This article first appeared on GuruFocus.
Oracle (NYSE:ORCL), the database and cloud-infrastructure giant, reports fiscal first-quarter results Thursday after the closing bell. Shares fell roughly 1% to $161.32 Wednesday as investors braced for a hard look at the cost of Oracle's AI expansion.
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The demand is enormous. Oracle finished May with $638 billion in remaining performance obligations, a staggering 363% increase from a year earlier. Its latest results showed cloud-infrastructure revenue rocketing 93% to $5.8 billion. Meanwhile, $75 billion of its major AI contracts involved hardware funded or supplied by customers, easing part of Oracle's upfront capital burden.
But backlog is not cash in the bank. The $638 billion commitment pile equals roughly 9.5 times Oracle's fiscal 2026 revenue of $67.4 billion, while free cash flow sank to negative $23.7 billion last year. Oracle also expects to raise about $40 billion through debt and equity in fiscal 2027. The picture adds a valuation twist: the $161.32 share price sits 17.25% below the $194.94 GF Value estimate. Thursday's real test is simplecan Oracle convert its AI backlog into cloud revenue faster than its capacity build consumes cash?