Why Is Oracle Stock Falling, and is it a Buying Opportunity? | ORCL STock Analysis

SUMMARY

Parkev Tatevosian, CFA, analyzes Oracle's recent earnings report, highlighting aggressive investment in AI infrastructure and the resulting market skepticism. Despite a sharp decline in share price, he maintains a positive outlook on Oracle's long-term value, citing improved cash flow trends and significant prepaid AI contracts.

MAIN POINTS

• Oracle's stock fell over 4% after reporting quarterly financial results for June 2026. [0:00]
• Oracle's revenue and earnings per share both grew by 21%, but heavy investment in data center capacity increased costs. [2:00]
• A large portion of Oracle's new AI contracts are prepaid or involve customer-supplied hardware, reducing counterparty risk. [5:00]
• Oracle forecasts accelerated revenue growth for fiscal 2027 but did not raise its full-year revenue target, disappointing some investors. [7:00]
• Oracle believes AI will revolutionize healthcare, potentially unlocking significant value beyond current large language model applications. [9:01]
• Despite recent declines, Oracle is considered undervalued with an updated intrinsic value of $215 per share, and remains rated as a buy. [12:02]

DETAILED ANALYSIS

Oracle's latest quarterly earnings report, released after markets closed on June 10, 2026, led to a notable decline in its share price, dropping over 6% in after-hours trading. The company reported a substantial increase in remaining performance obligations (RPO), which rose by $85 billion in just one quarter and now total $638 billion. However, the market remains skeptical about the realization of these obligations, especially given that a significant portion is tied to OpenAI, whose ability to fulfill these contracts is questioned due to liquidity concerns.

Despite this skepticism, Oracle's financial performance showed strong growth, with both revenue and earnings per share increasing by 21% year-over-year. The company's operating income for the fourth quarter reached $6.1 billion, resulting in an operating profit margin just under 33%. Operating cash flow hit a record $32 billion, up 54%, though free cash flow for the fiscal year remained negative at $24 billion.

Notably, Oracle's management revealed that much of the recent RPO growth stems from large-scale AI contracts where customers either prepaid or supplied their own GPUs, reducing Oracle's capital requirements and counterparty risk. To support its aggressive infrastructure expansion, Oracle raised $43 billion in debt and $5 billion in equity in 2026, with plans for an additional $40 billion in 2027. While the company forecasts accelerated revenue growth in the upcoming fiscal year, it maintained its full-year revenue guidance at $90 billion, which disappointed some investors used to upward revisions from AI-focused companies.

Oracle also highlighted the transformative potential of AI in healthcare, suggesting that future breakthroughs in this sector could drive even greater value. Importantly, the trend in free cash flow has shown signs of improvement, with the most recent quarter marking an inflection point after several quarters of worsening figures. Customer prepayments have helped offset capital expenditures, providing some relief to cash flow pressures.

After updating his discounted cash flow model, Tatevosian estimates Oracle's intrinsic value at $215 per share, well above the current market price, and continues to rate the stock as a buy, albeit with acknowledged risks.

LINKS

• YouTube channel membership for exclusive perks and early access.
• Special offer for The Motley Fool Stock Advisor.
• Parkev Tatevosian's book on stock investing frameworks.
• Fiscal.ai investment research platform with viewer discount.
• Webull investing platform sign-up with bonus shares.
• Substack newsletter subscription for monthly updates.

KEYWORDS