Oracle stock fell 12% over the past month through Monday's close, a period when the S&P 500 rose 0.6%. The decline was driven primarily by concerns over the company's expanding debt load to finance artificial intelligence infrastructure, rather than a collapse in core business performance.
The volatility intensified in October. On Oct. 8, Oracle shares dropped 5.5% as reports emerged that the company was in talks with Apollo Global Management and Goldman Sachs to finance a large AI chip purchase. The following week, the stock suffered its steepest loss on Oct. 14, falling 8.8% after September inflation data of 3.7% revived expectations for Federal Reserve rate hikes. That same week, the cost of insuring CoreWeave's debt against default reached a record high, according to ICE Data Services, and some CoreWeave bonds entered distressed territory. Oracle shares fell another 4.6% on Friday as these credit signals spread.
Oracle's balance sheet has shifted significantly to support its AI buildout. Total debt climbed from $46.6 billion in cash and lower debt levels to $109 billion in total debt by May 2025, while cash reserves dropped to $11.2 billion. By August 2026, total debt had risen to $169.1 billion against $37.1 billion in cash. In the August quarter, capital expenditures reached $28.5 billion, resulting in negative free cash flow of $5 billion. To fund this expansion, Oracle sold $20 billion in new stock.
Rising borrowing costs are now impacting earnings. Interest expense increased 55% to $1.43 billion, outpacing the 31% growth in non-GAAP operating income. In July, S&P Global Ratings downgraded Oracle to BBB-, the lowest investment-grade rating. While this keeps Oracle technically above the high-yield threshold that applies to CoreWeave, CNBC reported Monday that Oracle's credit default swaps are priced similarly to BB and B credit.
Despite the credit pressure, Oracle's top-line growth remains strong. Revenue rose 30% to $19.3 billion in the August quarter, with cloud infrastructure revenue jumping 121%. The contracted backlog reached $664 billion. Management expects fiscal 2027 revenue of at least $90 billion and non-GAAP EPS of $8.10. However, concentration risk is high; investor Steve Eisman noted on The Compound and Friends that half of Oracle's backlog is tied to OpenAI. OpenAI's reported $300 billion contract accounts for approximately 45% of the backlog and is scheduled to begin in 2027.
Oracle currently trades at 15.1x forward earnings, well below its five-year average of 21.4x. Analyst consensus targets stand at $237, down from $338 a year ago but still more than 80% above Monday's closing price. A valuation model projecting 26% annual revenue growth through fiscal 2032 suggests a potential share price of about $351 by May 2031.
The next major catalyst is the fiscal second-quarter report due in mid-December, where management is expected to provide guidance for 30% to 34% revenue growth and non-GAAP EPS of $1.85 to $1.93.