Oracle's Real Growth Story Is Hiding in Its $664 Billion Backlog

Investors have good reason to be concerned about Oracle (NYSE: ORCL) stock. The company has borrowed heavily to finance its transformation into an artificial intelligence (AI) cloud stock. Moreover, much of its backlog depends on OpenAI, a company that has not performed to expectations financially.

Despite that concern, investors may take comfort in the company's considerable backlog. Even if OpenAI does not perform to expectations, that backlog could still drive Oracle's growth story, and here's how.

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The state of Oracle today

Indeed, Oracle's growth story is likely hiding in the company's $664 billion backlog.

To serve its customers, Oracle has accumulated more than $125 billion in debt to finance the infrastructure needed to meet the demand for its AI cloud services. Since Oracle has a book value of around $67 billion, that debt places significant strain on the company's balance sheet, sparking concern that it could derail its AI cloud ambitions.

Furthermore, yields on some of its corporate bonds have risen above 8%. While that does not compare to the 15% bond yields of a neocloud company like CoreWeave, it has sparked investor concern.

Additionally, nearly half of that is the $300 billion deal it made with OpenAI. Investors have become increasingly skeptical about whether it can afford to honor its agreement with Oracle.

But Oracle has a tremendous backlog without OpenAI. That backlog grew by $209 billion over the previous 12 months, approximately two-thirds the size of its OpenAI deal. Such improvements increase the likelihood that it can monetize its AI investments with or without OpenAI.

Investors can also take comfort in the fact that its revenue for the first quarter of fiscal 2027 (ended Aug. 31) was over $19 billion. That was 30% higher than the year-ago level, and nearly all of that growth came from its cloud segment.

Despite rapidly rising interest expenses, net income in fiscal Q1 was almost $4.8 billion, a 63% yearly increase. Hence, at least for now, the company continues to profit from its AI investments.

Furthermore, it differs from CoreWeave in one key respect. Although an AI downturn would almost certainly bring significant pain, investors should not overlook Oracle's non-cloud segments. Even though they are now slow-growth businesses, they keep the company profitable and could serve as a stabilizing force during a downturn.

Amid the stock sell-off, its price-to-earnings (P/E) ratio has fallen to just 20. Even though the high debt load may justify the lower valuation, it has maintained an average P/E ratio of 35 over the last five years, implying a discount that more risk-tolerant investors might find attractive.

Oracle amid the backlog

Oracle stock is probably worth considering for risk-tolerant investors, given the $664 billion backlog.

Admittedly, that backlog does not absolutely guarantee future revenue. Also, its considerable debt has meaningfully strained Oracle's finances.

However, Oracle has a massive backlog even without OpenAI's $300 billion share of that. Moreover, it has a growing cloud business and other segments that are slow-growing but stable.

Finally, Oracle now trades at a low P/E ratio. That arguably makes a strong case for buying the cloud stock and reaping the benefits expected from its backlog.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.