Oracle Weakens Bear Case With Broader AI Customer Base and $664 Billion Backlog
Oracle just posted a quarter that punched a hole in the most popular bearish argument against the stock, but two stubborn risks still stand between investors and a clear buy signal.
For a year, the bear case on Oracle (NYSE:ORCL | ORCL Price Prediction) was easy to state. A single blockbuster contract with OpenAI was doing most of the work behind the backlog, and if that customer wobbled, the whole AI thesis wobbled with it.
Wednesday’s fiscal first quarter report weakened that argument. Oracle booked more than $30 billion in new AI cloud contracts in the quarter alone, with management saying the non-OpenAI backlog more than doubled over the past year. The stock still closed at $153.17, down 20.77% year to date. So the real question is whether broader demand and customer financing have made ORCL safe enough to own after that decline.
Backlog Is Broader, but Conversion Is the Test
Remaining performance obligations reached $664 billion, up $209 billion year over year, and cloud infrastructure revenue grew 121% to $7.388 billion. Total revenue rose 29.6% to $19.345 billion, beating consensus.
The report showed strong AI demand, which tempered cash-burn fears. The bookings now span a broader customer set. Before this report, OpenAI had a much larger share of Oracle’s RPO.
Management expects roughly half of RPO to convert into sales within its stated window. That is Oracle’s expectation, not a schedule, and contracted work still carries timing, credit, and cancellation risk.
OpenAI dependence has been diluted while remaining material, and a stumble at Abilene, where 131,000 GPUs were delivered in Q1, would still hurt.
Cash Burn Is Real, the Rebuttal Is Credible
Capex hit $28.499 billion, free cash flow was negative $5.396 billion, and interest expense reached $1.438 billion in the quarter. Long-term debt sits at $122.342 billion.
Oracle’s rebuttal is that customers are funding much of the buildout. Clay Magouyrk said the new contracts came in “via prepay or bring your own hardware or similar mechanic”, adding:
“I didn’t say, and I don’t think myself nor Hilary said that it doesn’t require additional CapEx. We said it doesn’t require additional cash from Oracle.”
That is convincing on the margin. It is not a guarantee, because Oracle still expects fiscal 2027 and 2028 to be peak capex years, with full-year capex guided to $90 billion to $95 billion.
Margins, Valuation, and What You Are Paying For
Infrastructure carries lower gross margin than software. Utilization was 97.9%, and renewed GPU capacity was priced at a 20% premium, supporting the operating-margin story CFO Hilary Maxson emphasized.
On guidance of $8.10 non-GAAP EPS for fiscal 2027, ORCL trades near 19 times forward earnings, below its 27x trailing and against an analyst target of $241.43.
Is ORCL Stock a Buy?
The bearish premise that Oracle is one customer away from a broken story is weaker than it was a quarter ago. The bookings are broader, customers are pre-funding capacity, and the multiple has compressed while the backlog has grown.
The risks I take seriously are conversion timing, rising interest expense, and margin compression during the ramp. None are disqualifying at this price, though investors should weigh conversion cadence and capex intensity before adding exposure. ORCL stock remains a Hold for me.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks.
