Can Oracle Make a Strong Comeback in 2026 After Previous Struggles?
AI Podcast
Oracle exhibits strong long-term revenue prospects, evidenced by a $523 billion remaining performance obligation (RPO) backlog as of November 30, 2025, a 433% year-over-year increase driven by cloud infrastructure contracts. The company demonstrates disciplined growth and margin goals, targeting 30%-40% gross margins for AI data centers. Despite a recent stock price drop attributed to AI investment concerns, analysts suggest this presents a buying opportunity. While debt financing for infrastructure remains a consideration, Oracle's traditional business and cloud services support a valuation of $137 per share, with AI revenue yet to be factored.
TradingKey - The focus of retail investors should be on companies with long-term revenue prospects and strong cost management.
Oracle (ORCL) appears to be a good example. As of February 26, 2025, shares of Oracle were approximately $198 older than their all-time high (occurred in September 2025 at $345.72) primarily due to concerns regarding whether the company's large investments in AI and cloud services will yield immediate revenue and income, and how much debt (incremental) will be required to build out AI infrastructure needed to fulfill their contracted backlog.
That doubt now appears false.
Oracle’s Long-Term Revenue Prospects
On November 30, 2025, the end of its second quarter of fiscal 2026, Oracle had $523 billion in total remaining performance obligations (RPO).
RPO has increased 433% from the prior year, primarily being driven by several large, multi-year cloud infrastructure contracts with global customers like Nvidia Corp and Meta Platforms Inc (formerly known as Facebook).
Compared to Oracle's guidance for $67 billion of revenue in fiscal 2026, the RPO amount represents a very large, multi-year backlog that gives the company tremendous visibility into future revenues.
The backlog has created a large gap in earnings timing, so even small differences in when RPOs convert to earnings will have a large impact on Oracle's overall earnings.
It should also be noted that Oracle's remaining performance obligation (RPO) revenue growth for the next 12 months compared to the prior year was up by 40% vs 25% sequentially from the last quarter.
The additional cloud capacity will produce an estimated $4 billion in RPO revenue from quarter 2 of fiscal 2026.
Disciplined Growth and Margin Goals
Oracle does not desire to develop new technologies and expand quickly by building additional data centers for either itself or other companies.
Oracle only works with companies when there are all the necessary elements are present to build an AI data center, including available power and land, technical skill, and engineering skill to design and build the data center.
Oracle anticipates gross margins of 30%-40% by constructing AI data centers for other companies.
Therefore, Oracle will seek other options for financing its capital expenditures and limit the use of bank credit and financial institutions through other methods (i.e., using customer-supplied chips and vendor-funded chips), thereby reducing Oracle's up-front cash flow needs.
Market Panic: An Overreaction?
The drop in Oracle's stock price of over 25% YTD has been helped along by fears of what impact AI will have on traditional software.
Analysts are stating Oracle has strong underlying measurements and the recent drop in stock price makes for an excellent opportunity to purchase stock at lower price points.
The Price-to-Earnings ratio of Oracle has contracted as a result of, and Oppenheimer upgraded Oracle to outperform, as they believe extreme pessimism is already factored into the price.
Concerns remain over the potential for default on the $248 Billion of data center leases and whether the leases will be stranded. However, most data center leases are generally longer than 15 years and have high demand for capacity from international enterprises migrating to the Cloud.
Oracle's remaining Total Addressable Market (TAM) and the current stress tests of Oracle's traditional database + cloud service = $137/share - support a future Valuation of $137/share based simply on Oracle's traditional database & cloud service revenues with no support from potential AI revenue.
In summary, Oracle has a large backlog of booked projects, short conversion timeframes from booked to revenue, disciplined in the areas of margin and operational expenses and a long-term lease portfolio supported by high levels of demand for the resources - meaning Oracle is probably going to experience very strong future growth once additional capacity is available and revenue-producing projects convert into revenue-generating operations.
