Oracle Stock Fell While Its Operating Margin Climbed For A Third Straight Year

The build-out that dented gross margin has not stopped the operating line from widening, and that is the number the selling appears to discount.

Oracle (ORCL) stock has fallen 43% over the past year while the S&P 500 returned 23%, and one argument against it rarely changes: the AI build-out is compressing the margins that made the company worth owning. Gross margin did fall in fiscal 2026. The operating margin, the line that actually feeds earnings, rose for a third straight year.

Gross Margin Gave Up About Five Points And The Operating Margin Still Rose

Oracle’s gross margin stepped down around 5 points in fiscal 2026, the cost of building data centers faster than their revenue arrives. The operating margin went the other way. It reached 33% over the last twelve months, up from 32% a year earlier, 30% two years ago, and 28% three years ago, on revenue growing 17% year over year. That is a direction, not one good year, and it held through the first year of the build-out. Gross margin is where a build-out lands first; the operating line is where an owner finds out whether it matters.

Efficiency Actions Offset The Build, And Customer-Funded Hardware Does Not Dilute Margin

Two levers bear on the margin question. The first sits further down the income statement: management attributes the offset to lower operating costs as a percentage of revenue across fiscal 2026, driven by operating efficiencies. In fiscal Q4 2026, that reduction started with sales and marketing, and the company expects operating costs to be slightly lower in dollar terms in fiscal 2027. Margins that widen during a build-out of this size are the sort of profitability that runs through the holdings of the Trefis High Quality Portfolio.

The second lever is who owns the equipment. Oracle now counts $75 billion of bring your own hardware or prepaid customer contracts, which the company says carry no degradation in margin against its other contracts. Where costs cannot be locked down, Oracle does not write fixed-price contracts; it passes those costs through instead, which management says keeps the memory and storage price increases off its own margin. What is left is timing, visible at the site: Abilene, Texas had delivered 42% of its total capacity as of the last earnings call, with the rest still to come before it reaches full revenue contribution.

Fiscal 2027 Is Where The Margin Case Gets Tested

None of this makes the spending small. Oracle guides to around $70 billion of net cash outlay for capital expenditures in fiscal 2027, more than the $67.4 billion of revenue it booked over the last twelve months, and that measure already excludes the customer prepayments it expects to collect. Funding that program means raising around $40 billion in debt and equity, and gross margin is guided down again on that ramp and on mix. The case is not that the build-out is free, but that a year of it has already run through the operating line and the line still rose. The confirmation would be that same climb holding when fiscal 2027 is reported. The stock sits at about 44% of its 52-week high, less than half of that peak, so it is also worth seeing how a drop this deep compares with other beaten-down names.

A Widening Margin Is Still One Company’s Margin

Oracle’s operating line has earned the benefit of the doubt, and the stock still carries one company’s execution risk through a build-out that is not finished. Spreading that risk across many businesses is what a rules-based basket like the Trefis High Quality Portfolio is for. That portfolio has a track record of outpacing the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000.