Oracle Wins $7 Billion Pentagon Contract, How Far Can This Rally Go?

TradingKey - Oracle gains $7 billion boost to spark a stock rebound, but upside remains highly limited, with $135 acting as strong resistance.

On July 24, Eastern Time, boosted by an order from the U.S. Department of Defense, Oracle ( ORCL) rose 3.22% in pre-market trading to $123.99. Yesterday, Oracle's stock fell sharply, briefly losing the $120 mark, and dropping to an intraday low of around $119, hitting its lowest level since April 2025.

It is reported that Oracle signed a 10-year enterprise software and cloud procurement agreement with the U.S. Department of Defense (DoD) worth up to $7 billion, including perpetual software licenses, subscription software licensing, maintenance, and consulting services. Although this $7 billion order from Oracle injects a shot in the arm for its fundamentals, the market's concerns regarding its AI infrastructure cash-burn rate and financial structure remain heavy, meaning the upside for a rebound is quite limited.

It should be emphasized that this money is not recognized all at once, but includes a base period of $3.31 billion for the first 5 years and extension options for the subsequent 5 years. Calculated on an amortized basis, it contributes an average annual revenue of about $330 million to $700 million. For Oracle, whose annual revenue has already surpassed $50 billion, the marginal boost of this income to its quarterly EPS is extremely limited.

Since the beginning of this year, Oracle's fundamentals have deteriorated, causing its stock price to weaken continuously, with a cumulative decline of 39% to date. As corporate clients shift their budgets toward AI computing power, the revenue growth of Oracle's traditional large-scale enterprise software licensing has slowed, and the profits from traditional businesses can no longer provide a stable cash flow moat as they did in the past.

To compete with Microsoft ( MSFT ), Amazon ( AMZN) and Google ( GOOG) for the AI cloud computing market, Oracle launched one of the most aggressive data center construction plans in tech history, bringing its fiscal year 2026 capital expenditure to $55.7 billion and guiding that fiscal year 2027 net project cash expenditure will be further adjusted upward to $70 billion. To raise massive CapEx funds, Oracle chose large-scale debt issuance and new stock offerings, causing its leverage ratio to skyrocket and leading to market anxiety that the interest burden in a high-interest-rate environment will severely erode its future shareholder equity.

Currently, Oracle is in a typical technical rebound after being oversold. Before seeing substantial evidence of "accelerated realization of AI cloud revenue" or a slowdown in CapEx burn rate, it will be extremely difficult for its stock price rebound to cross the $135 mark in one go, as this area is the lower bound of the dense trading zone over the past few months. However, if a collective decline in tech stocks drags Oracle back below $120, the stock price may seek support at the $100 psychological level.

Oracle stock price chart, Source: TradingView