Oracle (ORCL) Stock: Can Q2 Earnings Calm Fears Over Massive AI Debt?

TLDR

• Oracle reports fiscal Q2 2026 earnings on December 10, with analysts expecting $1.64 EPS and $16.19 billion revenue
• Stock down 7.4% in past month despite 33% year-to-date gains due to debt and customer concentration concerns
• Company raised $18 billion in jumbo bond sale in September, now largest investment grade debt issuer among non-financial firms
• Total debt reached $111.6 billion as of August, up from $84.5 billion year earlier, to fund AI infrastructure buildout
• $300 billion OpenAI deal and 359% jump in contracted revenue backlog to $455 billion have fueled both optimism and skepticism

Oracle faces a critical test when it reports fiscal second-quarter results after market close on December 10. Wall Street expects adjusted earnings of $1.64 per share and revenue of $16.19 billion, representing 11.6% and 15% year-over-year growth respectively.

Oracle Corporation, ORCL

The stock has experienced wild swings recently. Shares fell 23% in October, marking the worst month since 2001. The decline reflects growing investor anxiety about the company’s debt obligations tied to AI infrastructure spending.

Oracle raised $18 billion through a jumbo bond sale in late September. The issuance ranks among the largest debt offerings in tech industry history. The company now holds the title of biggest investment grade debt issuer among non-financial firms, according to Citi.

Total debt climbed to $111.6 billion as of August, up from $84.5 billion a year earlier. Cash and equivalents dropped slightly to $10.45 billion from $10.6 billion over the same period. Citi analyst Tyler Radke projects Oracle will need to raise $20 billion to $30 billion in debt annually for the next three years.

The aggressive borrowing strategy stems from Oracle’s push to build data center capacity. A $300 billion deal with OpenAI came to light in September, involving computing power purchases over about five years starting in 2027. The agreement positioned Oracle as a more central player in the AI race.

TD Cowen analyst Derrick Wood maintains a Buy rating with a $400 price target. He noted shares trade at about 22x calendar year 2027 earnings, which he considers trough valuations. Wood believes a reaffirmation of Oracle Cloud Infrastructure growth acceleration through fiscal 2026 could address capacity expansion worries.

Debt Concerns Weigh on Sentiment

Credit default swaps for Oracle’s 5-year debt hit new multi-year highs. These financial instruments act like insurance for investors worried about repayment ability. Both Barclays and Morgan Stanley analysts recommend clients buy Oracle’s 5-year CDS as protection.

Daniel Sorid, head of U.S. investment grade credit strategy at Citi, expressed discomfort with the transformation Oracle faces. He emphasized the enormous capital requirements in a video call to investors. The market questions whether Oracle will tap sources beyond debt markets.

RBC Capital analyst Rishi Jaluria holds a Hold rating with a $310 price target. He suggests Oracle might explore off-balance sheet facilities, equity issuances, or interest from sovereign wealth funds. The analyst points to Meta’s $27 billion joint venture with Blue Owl Capital as one possible financing model.

Revenue Backlog Provides Hope

Remaining performance obligations represent a key metric investors will watch closely. These contracted revenues haven’t yet been recognized on financial statements. StreetAccount expects RPOs to surpass $500 billion, up more than fivefold from a year earlier.

Oracle disclosed in September that RPOs jumped 359% to $455 billion. The announcement sent shares up 36% in their best single-day performance since 1992. The stock has since given back all those gains and more.

D.A. Davidson analyst Gil Luria plans to focus on Oracle’s core database business. This segment generates much higher margins than infrastructure. The performance will help determine how much flexibility Oracle has for additional capital raises.

Oracle secured billions in construction loans through a consortium of banks. The financing ties to data centers in New Mexico and Wisconsin. Newly installed CEOs Clay Magouyrk and Mike Sicilia face pressure to demonstrate AI demand justifies the buildout plans.

The company’s 5-year credit default swaps attracted not just typical credit investors but “tourists” with less experience in the instrument, according to Morgan Stanley. Andrew Keches at Barclays told clients in a note last month he saw no avenue for Oracle’s credit trajectory to improve.

Investors will listen closely for signs that AI demand supports Oracle’s aggressive spending. The fiscal second-quarter results could serve as a catalyst to reverse recent negative sentiment or deepen concerns about the company’s financial position.

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