The Biggest Warning Signal Flashing for Oracle Right Now Has Nothing to Do With Sales or Profitability

Oracle (NYSE:ORCL | ORCL Price Prediction) recently reported blockbuster earnings, with both the top and bottom lines coming in above estimates. Revenue came in at $19.2 billion ($100 million higher than estimated), and EPS came in at $2.11 ($1.96 estimated). Both of these figures would’ve led to an equally blockbuster stock market performance, but the opposite has happened.

Oracle is turning into a “growth at any cost” company, and Wall Street is no longer rewarding it. And if this trend continues, ORCL stock could stay in the red for far longer than you think.

It obviously looks counterintuitive, because investors have historically rewarded profitable growth. However, other figures make revenue and EPS look like a distraction in comparison.

The flashing warning signal for Oracle

The biggest warning signal for Oracle is that the stock market is getting skittish about the AI buildout. ORCL stock reached eye-watering valuations late last year, and this made management confident that going all-in on what the market liked would lead to an even bigger windfall.

Unfortunately, building AI data centers is not easy. Oracle needs hundreds of billions and many years to convert that $638 billion backlog into revenue. It does not have hundreds of billions in cash, so all that money would either have to come in as debt, or Oracle could issue shares. Both of these strategies only work if the stock market keeps rallying and the valuation remains high.

If Wall Street sours on Oracle and the valuation tumbles, everything falls apart.

Let’s say ORCL stock drops 50% from here. A company with a $250 billion market cap will have trouble raising hundreds of billions of dollars in low-interest debt.

Why Wall Street is souring on Oracle

Investors’ reaction to Oracle’s Q4. FY 2026 earnings release implies that they are no longer going to blindly buy ORCL stock. We’re not in 2025 anymore, and investors are much more careful about the stocks they hold. Even Palantir (NASDAQ:PLTR) has declined and is now treading water despite back-to-back earnings beats.

But why?

If you look at revenue/EPS and then buy stocks off of just those two metrics, you’re likely going to underperform. Wall Street is now looking at balance sheets and cash flow instead. Both of these metrics look unpleasant when it comes to Oracle.

Investors like to buy the “pickaxes” of the AI gold rush. Namely, Nvidia (NASDAQ:NVDA), Taiwan Semiconductor (NYSE:TSM), Micron (NASDAQ:MU), among others. These companies are selling the hardware and have high free cash flow metrics. Their balance sheets are getting healthier by the day.

On the other hand, Oracle is the one buying all this hardware, for higher and higher prices. Trailing 12-month free cash flow is -$23.7 billion. Oracle is only “profitable” due to accounting rules spreading out the buildout costs over many years. This is the case with many of its peers.

Rougher times are likely ahead

One of the main reasons behind ORCL stock tumbling by 27% so far into June is that management is doubling down on spending and shareholders will have to fund it. Oracle spent $55.7 billion on data centers and infrastructure in FY2026. Management projects net capex will balloon even further to around $70 billion in FY2027.

To fund this buildout, Oracle raised $43 billion in debt and $5 billion in equity in FY2026. Its total debt surpassed $153.1 billion by the end of February. And to fund the increased capex for next year, Oracle plans to raise another $40 billion in FY2027 through debt and equity. This includes a previously disclosed $20 billion “at-the-market” equity program.

On the flip side, Nvidia announced an additional $80 billion buyback program less than a month ago. It’s clear why investors aren’t happy with Oracle and other companies that are spending recklessly on this buildout.

I still wouldn’t dump ORCL stock. Here’s why

The market rally isn’t entirely rational, and there are still pockets out there that are seeing success despite limited cash flow.

SpaceX (NASDAQ:SPCX) just had its IPO and is now worth over $2 trillion as of this writing, with other AI companies following suit. This “IPO mania” could spill over into the rest of the market and lead to a final, more euphoric leg of the AI rally. Of course, it’s far from guaranteed, but if you’re holding ORCL stock after a near-30% fall, it’s not a good idea to sell at a loss just as the market starts getting interesting again.