Oracle stock plunges 50% as $638B backlog raises more questions than answers

Wall Street is no longer rewarding Oracle's record AI backlog — it's questioning whether those contracts will ever turn into cash.

Oracle Corp. shares have fallen 50% from last year's record high as investors shift focus from the company's $638 billion order backlog to the risks embedded within it.

"The market is pricing in real concern that a material portion of Oracle's backlog may never convert to revenue at the margins investors expect," said Billy Fitzsimmons, an analyst at Piper Sandler who maintains an Overweight rating on the stock.

The software giant's remaining performance obligations surged 363 percent year over year to $638 billion as of May 31, driven largely by AI infrastructure contracts with OpenAI and other large language model developers. But nearly half of that backlog — roughly $300 billion — is tied to OpenAI alone, a startup with just $25 billion in annualized revenue that remains deeply unprofitable, according to a Wall Street Journal report from September. Oracle warned in its fiscal 2026 annual report that some customers "may be highly leveraged" and that it faces "risks of non-payment and non-performance."

The concern matters because Oracle has taken on $122 billion in long-term debt and plans to raise another $40 billion in fiscal 2027 to fund data center construction, all while free cash flow swung to negative $23.7 billion. If even a fraction of those AI contracts fail to materialize, the company could be left with billions in infrastructure it cannot repurpose.

The selloff has been brutal by any measure. Oracle shares closed at roughly $144, down 58.2 percent from their 52-week high of $345.72 reached last September. The stock has fallen 39.4 percent over the past year, a stark contrast to the S&P 500's 20 percent gain. In 2026 alone, Oracle has dropped 26.2 percent while the broader index has returned 10 percent.

The market's skepticism centers on a fundamental question: can Oracle convert its backlog into cash before its debt burden becomes unsustainable? The company expects to recognize only about 12 percent of its RPO as revenue over the next 12 months, followed by another 34 percent in the subsequent 24 months. That leaves more than half the backlog — over $300 billion — sitting beyond a three-year horizon in an industry where technology cycles turn quickly.

Customer Concentration and the OpenAI Risk

The concentration risk is unusually stark. OpenAI, which has raised $122 billion in fresh capital to fund its operations, has made similar commitments to other cloud providers including Microsoft, leaving it hundreds of billions of dollars short of being able to fulfill all its obligations, the Journal reported. Oracle's annual report acknowledged the risk explicitly, warning that "even if our credit review and analysis mechanisms work properly, we may experience risks of non-payment."

Piper Sandler's Fitzsimmons, however, argues the market is overlooking Oracle's cloud opportunity. He estimates Oracle Cloud Infrastructure could generate roughly $2.2 billion in revenue not yet reflected in consensus estimates, citing accelerating OCI growth and the company's new CFO. The broader analyst community remains bullish: Oracle carries a consensus Strong Buy rating from 33 of 43 analysts, with an average price target of $257.37 implying 79 percent upside from current levels. The Street-high target of $400 suggests a potential 178 percent rally.

Still, the gap between analyst optimism and market reality is wide. Oracle's market capitalization has shrunk to about $414 billion, and the company's aggressive capital spending shows no signs of slowing. For investors, the question is no longer whether Oracle has demand — it's whether that demand will ever become profitable enough to justify the cost of meeting it.

This article is for informational purposes only and does not constitute investment advice.