Oracle's $664 billion backlog and 30% growth are real, but $23.7 billion of free cash outflow last year and heavy debt balance them. At 17.8 times this year's earnings, we expect the stock to track the market.
Key points
- $664 billion of contracted backlog, but only about 13% converts to revenue within twelve months.
- -$23.7 billion free cash flow in fiscal 2026 (year to May), with $125 billion of borrowings.
- $150.93 target, 5% above the price: the stock tracks the market.
The call
The price asks for Oracle to deliver its backlog without a funding accident. At $143.93 the stock trades at 17.8 times fiscal 2027 profit guidance of $8.10 a share. That already values heavy growth.
Operating cash flow vs capex ($ billions)Source: Oracle SEC filings via desk fact table, through quarter ended Aug 31, 2026
We think the market is about right. Revenue growth reached 29.6% last quarter and guidance implies 30% to 34% next. Yet capex ran $28.5 billion in one quarter, and customers' prepayments, not profits, produced much of the $23.1 billion operating cash flow.
Valuation
| Item | Figure |
|---|
| Fiscal 2027 profit guidance (non-GAAP) | $8.10 a share |
| Our fiscal 2028 / 2029 estimates | $9.60 / $11.00 a share |
| Blended next-twelve-months profit, Oct 2027 | $10.06 a share |
| Multiple | 15 times |
| Target | $150.93 a share |
| Bear / bull case | $106 / $207 a share |
Fifteen times is below today's multiple because profit growth is strong but free cash flow is negative and debt is large. Our bear case loses 27% and our bull case gains 44%, so the odds are balanced. That fits a hold: the expected return of about 5% does not clear the 12% bar for a buy.
Risks
- Delivery delays in power and data centers (Project Jupiter, New Mexico permits): watch the December 14 results and capex against revenue.
- Funding strain: $288 billion of leases not yet on the balance sheet, rising rates (3.75% to 4%): watch debt issuance and share sales, as 141 million shares were issued last quarter.
- Customer concentration or non-payment in AI contracts: watch backlog conversion and any renewal pricing below the claimed 20% premium.
What would change my mind
Positive consolidated free cash flow with backlog converting on schedule would make this a buy; a delayed campus or a funding gap would make it a sell.