Oracle is managing a record artificial intelligence backlog of $664 billion while reporting negative free cash flow, creating a financial tension that analysts say requires resolution. The company's Chief Financial Officer, Hilary Maxson, stated that the firm has not provided a specific timeframe for when free cash flow will turn positive.
The company's cloud revenue reached $11.61 billion last quarter, marking a 62% increase and now constituting 60% of total revenue. This rapid expansion has driven significant capital expenditure, with quarterly capex hitting $28.5 billion. Consequently, Oracle's free cash flow for fiscal 2026 was negative $23.7 billion. The stock currently trades at $126.08 and is down 34.41% year to date, a decline that follows a broader selloff in AI debt-related equities.
Remaining performance obligations increased by $209 billion year over year to reach the current $664 billion total. Management expects approximately half of this backlog to convert into sales over the next 36 months. Customers signed more than $30 billion in new AI contracts, with the majority structured as prepayments or bring-your-own-hardware deals. Cloud infrastructure revenue increased by 121%, and GPU utilization reached 97.9%. Renewals were priced at a 20% premium, contributing to operating income rising 57.3% on 29.6% revenue growth.
Despite strong operational metrics, the balance sheet reflects the cost of this infrastructure buildout. Total debt stands at $155.9 billion, with an additional $30.6 billion in capital lease obligations. Quarterly interest expense rose 55% to $1.43 billion. Oracle recently completed a $20 billion at-the-market equity sale and plans to raise approximately $40 billion this fiscal year through debt and equity issuance.
Analysts remain largely positive on the growth trajectory. Over the past 30 days, 35 analysts raised full-year estimates while only one cut them. The consensus price target is $236.54, suggesting an 87.6% potential gain from the current price of $126.08. With a forward P/E of 18 and a PEG ratio of 0.802, some view the valuation as inexpensive relative to the growth rate. However, DA Davidson analyst Gil Luria identified data center execution and a leveraged balance sheet as the two primary constraints.
The company delivered 850MW of capacity and generated record operating cash flow of $23.1 billion in the recent period. Net cash capex could reach $70 billion this year, though funding remains unclear due to the absence of a date for positive free cash flow. License revenue fell 15%, and a handful of very large AI contracts make up much of the backlog.
Investors are watching the next earnings report for tests of cloud growth guidance of 65-71% and EPS guidance of $1.85-$1.93. Key metrics to monitor include RPO conversion, net capex, and interest expense, as well as progress at the New Mexico and Wisconsin sites. The market has shown sensitivity to performance, with shares falling about 13% following a revenue miss in December last year.