Oracle Stock Dips Despite Continued Strong Backlog Growth. Should Investors Buy the Stock on the Dip?

Oracle (NYSE: ORCL) has become one of the biggest battleground stocks when it comes to artificial intelligence (AI), and investors were in a selling mood after the software-as-a-service (SaaS) and cloud computer provider reported its Q4 fiscal year 2026 results. While the stock has been volatile, it's down only about 5% on the year and up 5% over the past year.

Let's take a closer look at Oracle's results and prospects to see if the recent sell-off is a buying opportunity.

Margins in focus

While Oracle bulls get excited by the company's enormous cloud computing backlog, bears worry about the spending needed to build out capacity and the return it will get on these infrastructure investments. The buildout will also negatively impact gross margins initially, as there is a lag from its enormous spending (even though it is depreciated) and the revenue it generates. However, this is normal and not surprising or worrying.

For the quarter, Oracle's revenue climbed 21% year over year to $19.18 billion, topping the $19.1 billion analyst consensus, as compiled by LSEG. Cloud revenue surged 47% to $9.9 billion. Within the cloud segment, cloud infrastructure revenue skyrocketed by 93% to $5.8 billion, while cloud application revenue grew by 10% to $4.1 billion. Software segment revenue fell by 2% to $6.8 billion.

Adjusted earnings per share (EPS) jumped 20% year over year to $2.03. That came in above the $1.96 analyst consensus.

Oracle's cloud computing backlog soared 363% to $638 billion. It said most of its increased backlog over the past two quarters has come from customers who prepaid for graphics processing units (GPUs) or supplied their own to the company. It said this portion of its backlog now stands at $75 billion.

Looking ahead, management maintained its fiscal-year 2027 revenue forecast of $90 billion. For its fiscal Q1 of 2027, it projected revenue to rise by 27% to 29% and for cloud revenue to climb by 57% to 63%. It expects its adjusted EPS to increase by 16% to 19% to a range of $1.72 to $1.75.

Image source: The Motley Fool.

Is the stock a buy on the dip?

Oracle is likely to remain driven by investor emotion for the foreseeable future, as it will take time to demonstrate that it is achieving a solid return on its investments. The company is smartly having customers like OpenAI prepay for GPUs, taking away some of the cash flow burden from its massive buildout. Nonetheless, it still needs to spend a massive amount, and it will raise $40 billion this year through debt and equity sales to help fund it.

Given its sizable debt load and negative free cash flow, the stock is more of a speculative investment, even though this is a sizable company with a storied history. With a forward price to earnings ratio (P/E) of 23 times, though, it looks like one worth making.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.