3 Red Flags Investors Should Consider Before Buying Oracle Stock

Oracle (ORCL 1.43%) stock is trading down 37% in the last six months and 24% year to date as artificial intelligence (AI) spending concerns clash with a broader software stock sell-off.

Even though Oracle is down big in a short period of time, investors should consider the following red flags before buying the growth stock.

Image source: Getty Images.

1. The AI spending race could create debt issues later on

In September, Oracle forecast that it would grow revenue from its Oracle Cloud Infrastructure (OCI) cloud segment from around $10 billion in fiscal 2025 to $144 billion in fiscal 2030 – which includes the second half of calendar year 2029 and the first half of calendar year 2030.

To realize that goal, Oracle is building out a mix of OCI-specific public clouds; multiclouds where it physically deploys its data center infrastructure within companies like Amazon, Microsoft, and Alphabet’s Google Cloud; and on-premises hybrid clouds that bring OCI directly to the customer’s data center.

Oracle’s solutions center around flexibility and efficiency. By embedding its tools directly into leading vendors, Oracle reduces latency by eliminating the need to transport large datasets across clouds – which is critical, given that Oracle already manages so much of the world’s high-value, private data.

Oracle’s solution has serious potential to disrupt the cloud infrastructure industry. But Oracle’s free cash flow (FCF) from its database and data management software segment isn’t large enough to fund the buildout, so Oracle is borrowing a lot of money – exiting its latest quarter with roughly $100 billion in long-term debt.

Current industry leaders – like Amazon Web Services (AWS) and Microsoft Azure – are also aggressively spending on cloud infrastructure to capture AI spending. Amazon forecast $200 billion in 2026 capital expenditures (capex). And Microsoft’s capex is also increasing at a breakneck rate.

The key difference is that AWS and Azure are already highly profitable and heavily contributing to increased spending. So Amazon and Microsoft don’t have to rely as much on leverage compared to Oracle.

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NYSE: ORCL

Oracle

Today’s Change

(-1.43%) $-2.16

Current Price

$149.40

Key Data Points

Market Cap

$429B

Day’s Range

$148.45 - $154.14

52wk Range

$118.86 - $345.72

Volume

5M

Avg Vol

29M

Gross Margin

65.40%

Dividend Yield

1.34%

2. There is uncertainty about Oracle’s cloud margins

Another challenge is OCI’s margins. Part of the reason Oracle has been able to grow its remaining procurement obligation (RPO) backlog to $523 billion is that it has attracted big-time commitments from companies like OpenAI and Meta Platforms. But it’s unclear if OCI won these deals because of its new data centers that are custom-built for AI and high-performance computing workflows or because it offered customers generous terms.

So there’s uncertainty with OCI’s timeline for realizing revenue and the profitability of that revenue.

In 2025, AWS generated $45.6 billion in operating income from $128.7 billion in revenue – good for a 35.6% operating margin. Similarly, Microsoft’s cloud segment has raked in $21.4 billion in operating income in the first half of fiscal 2026 from $49.6 billion in revenue for a 43% operating margin. Investors shouldn’t assume that OCI’s margins will be this high, at least early on, meaning it could take a while for OCI to generate enough FCF to substantially pay down its debt.

3. Oracle now has a dependence on OpenAI

The final red flag is Oracle’s dependence on OpenAI. OpenAI could go public later this year, with reports indicating it is raising another $100 billion at an $850 billion valuation – with support from companies like Nvidia, Amazon, and Microsoft. But it remains to be seen how OpenAI will continue paying for its capital-intensive investments, from Nvidia chips to cloud computing deals with OCI and other players.

Oracle would face serious pressure if OpenAI delays or cancels some of its commitments – especially if Oracle can’t redirect capacity to an alternative customer.

The boldest bet in cloud infrastructure

Oracle is an intriguing, high-risk, high-potential-reward AI stock that may appeal to investors who believe its aggressive spending is the right long-term decision. However, leverage is a double-edged sword that can amplify upside potential and compound downside risk.

Oracle will face even more pressure now that Amazon and Microsoft are aggressively increasing their cloud spending. So Oracle is only worth considering if you have a very high risk tolerance.