Oracle is spending so much on AI that its credit risk has never been higher - and somehow, analysts still think the stock is a buy.
Shares have dropped 24% in 2026, falling from all-time highs near $345 in late 2025 as the company's balance sheet stretches to pay for a massive AI build-out that has no precedent in Oracle's 47-year history.
Oracle's long-term debt has surged to about $124.7 billion, up from $85 billion a year ago, while free cash flow - the money left after a company pays its bills and invests - has turned negative at minus $24.7 billion.
The company plans to raise another $45 billion to $50 billion this year through stock sales and bond offerings to keep building AI data centers. Credit default swaps - contracts that protect against a company failing to pay its debt - have jumped to record levels, signaling that the bond market sees meaningful risk in Oracle's balance sheet.
That level of debt would have been unthinkable for Oracle five years ago, when the company was known for generating steady cash flow and buying back shares. The AI pivot has turned it into one of the most leveraged large-cap tech companies in the market.
For comparison, Microsoft carries about $47 billion in long-term debt with more than $80 billion in cash on hand. Oracle has nearly three times the debt and a fraction of the cash reserves, making its credit profile look more like a heavily leveraged infrastructure company than a traditional software firm.
The demand side tells a different story. Oracle's remaining performance obligations - contracts for future work that customers have already signed - hit $553 billion in Q3, up 325% from a year ago. Revenue grew 22% to $17.2 billion, and earnings per share rose 24%.
Analysts covering the stock keep a "Buy" rating with an average price target that implies more than 80% upside from where it sits now. Their argument is straightforward - $553 billion in signed contracts is real demand, and Oracle just needs to execute on delivery to grow into the debt over the next several years.
Oracle's cloud infrastructure business has been the main growth engine, with companies lining up for capacity as they build AI systems. The contracts are mostly long-term, stretching three to five years, which gives Oracle revenue visibility that few tech companies can match right now.
The company's biggest clients include major tech firms, government agencies, and healthcare companies that need secure, high-performance cloud infrastructure. Oracle's database business
- still the backbone of its revenue - gives it a built-in customer base that competitors like AWS and Azure cannot easily poach.
Oracle is making a huge bet that AI demand will keep growing fast enough to cover the debt it is taking on. The contracts are there - $553 billion is hard to argue with.
But if AI spending slows, interest rates stay high, or key customers delay their buildouts, all that debt works against Oracle in a hurry. The stock's direction from here depends entirely on whether investors focus on the balance sheet or the backlog.
