Has Oracle Become A Weaker Business, Or Just A Cheaper Stock?

Oracle (ORCL) made almost a quarter more operating profit in its last fiscal year. Yet when trading closed on September 10, the stock sat around 53% under the peak it reached a year before. Rising profit and a falling price point to one of two stories: trouble the results have not caught up with, or a sound company that has been repriced. The question is whether Oracle is turning into a weaker business, or has just become a cheaper stock.

What Do The Results Say About The Company?

On sales, profit and backlog, it is growing faster, not slower. Fiscal 2026 sales rose 17.4% to $67.4 billion, about double the 8.4% pace of fiscal 2025. Reported operating profit climbed by almost a quarter.

The newest quarter sped up again. Oracle released its first quarter of fiscal 2027 after the close on September 10. Sales rose 30% to $19.3 billion, and adjusted earnings came to $1.92 a share. Both topped Wall Street’s estimates. Oracle also lifted its profit forecast for the year.

The soft spot is Oracle’s software unit, where revenue slipped in the quarter. Cloud infrastructure did the heavy lifting, and renting out computing power is the fastest-growing part of the company.

Customers have also signed up for years ahead. By the end of fiscal 2026, they had committed to $638 billion of revenue that Oracle has yet to record. That is over four times the level of a year before, and close to ten years of fiscal 2026 sales. In the fourth quarter of fiscal 2026 alone, Oracle signed $67 billion in AI infrastructure contracts, followed by another $30 billion in Q1 of fiscal 2027. Co-Chief Executive Clayton Magouyrk noted that most of that contracted revenue was either prepaid or derived from hardware supplied by the customers themselves.

What Is The Catch For Anyone Holding The Shares?

Oracle has to spend heavily long before that revenue arrives. In June, the company projected a net cash outlay of about $70 billion on capital projects for fiscal 2027, a forecast it maintained yesterday. That is roughly triple its fiscal 2026 operating profit. It expected to raise around $40 billion in debt and equity in fiscal 2027 for the data center build-out. Part of that is a $20 billion share-sale program announced earlier.

Gross margin is taking the hit, and already has. It fell about five points in fiscal 2026. The CFO said it would step down again in fiscal 2027, as data centers ramp up and the business mix shifts. The CFO expected infrastructure margins to improve rapidly once the data centers reach full contracted revenue.

As of the latest quarter, approximately half of the $664 billion backlog is expected to convert into revenue over the next three years.

Competition is the other risk. An analyst on the June call pointed to how many vendors are now entering the market for AI data centers. Magouyrk replied that demand is still running far ahead of supply. Anyone holding the stock is counting on that.

How Far Has The Valuation Actually Fallen?

Hard. Oracle was worth about $440 billion at the September 10 close, hours before the results. That is around twenty times its fiscal 2026 operating profit. When the stock peaked a year earlier, buyers paid more than twice as much for each dollar of fiscal 2025 operating profit.

Analysts still like the stock. More of them rate it a Buy than a year ago. Yet their price targets averaged $233 over the past quarter, against $276 across the past year.

So Has Oracle Earned Its Lower Price?

On sales, profit and backlog, the business has not gotten worse, even as gross margin thins. Sales sped up in fiscal 2026 and again in the latest quarter. The signed backlog is many times a year’s revenue.

What has grown is the risk. Tens of billions of dollars go out, and new debt and shares come in. All of that happens long before most of the backlog becomes revenue. Owners are being asked to be patient.

If the data centers ramp up and infrastructure margins improve as the CFO expected in June, today’s discount will be hard to defend. If they slip, Oracle may need more than the $40 billion it planned to raise. Then the lower price would look deserved.

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