Oracle’s stock experienced a major selloff in the middle of December, where it dropped by up to 16.5% after the company disclosed its fiscal second quarter 2026 results. The stock has steadily been losing ground since then and is now approximately 42% down from its 52-week high, which was only three months ago.
The decline in stock price has raised questions in the market about whether Oracle is taking too much risk or not. Although, it has also given the company an opportunity to showcase its AI agent for the future, where it can silently prepare the stage for its next ultimate growth phase.
Risk Taking to the Extreme
Oracle is very aggressive in its pursuit of AI compared to other players. The firm ended the quarter with a whopping $80 billion in long-term debt net of cash, which is a very high ratio compared to the likes of Amazon, Microsoft, Alphabet, Nvidia, and Broadcom, which have huge cash reserves.
The company is financing its AI push mainly through debt rather than with cash flow, which has led to the concern that Oracle might be overstressing itself just as interest costs are beginning to rise, specifically with the quarterly interest expenses already surpassing $1 billion.
The Debt Debate Doesn’t Capture the Entire Situation
Oracle’s core software division is still one of the largest cash generators, and the free cash flow situation of the company is mainly due to the company’s own actions.
Instead of struggling to get operating income, Oracle is deploying capital aggressively in order to build an AI infrastructure. The company’s strategy hinges on a multiyear plan to establish 72 multicloud data centers that smoothly integrate Oracle’s Exadata and Autonomous Database services right within the ecosystems of AWS, Microsoft Azure, and Google Cloud.
A Strategic Infrastructure Play
This embedded multicloud strategy minimizes the migration of data across the platforms and it enhances performance, while also saving costs for the clients who deal with enormous amounts of data. As the build-out starts approaching completion, the capital expenditures are expected to be more or less in line with the normal range.
This transition might result in the free cash flow being able to recover significantly, which would then be the basis for faster debt repayment. What now appears as a financial burden may actually be nothing more than a temporary consequence of heavy investment that is front-loaded rather than a core weakness of the firm.
Valuation Reflects Fear
The retreat from the market has driven down Oracle’s valuation considerably. The stocks are being traded at a rate that is less than 30 times their forward earnings, and are no longer subject to a premium that one would expect to be associated with a company that is actively involved in the development of AI and high-performance computing.
If Oracle’s mega cloud investments bring the growth in numbers that the management is expecting, then the current multiple would seem quite small for a company, which is already at the center of the enterprise AI demand.
High Risk & High Reward for Long-Term Investors
Despite all this, the risk factor remains intact. Oracle’s strategy will require tolerance for volatility, and self-assurance that AI infrastructure demand will be there in the next decades. There is always the chance that Oracle is trading off its profit margins for getting the contracts, which in turn may slow down the process of profitability even as the revenues are increasing.
However, the cautious investors may prefer to wait for the return on investments to become more clear before they engage.
The decline in Oracle’s stock price mirrors the concerns that are valid, but at the same time it might also be a sign that the future is far more difficult and less favorable than the current mood that the market suggests. The company is making a bold and aggressive bet, which is aided by debt, on AI infrastructure at a time when the demand is increasing rapidly.
