Down 48%, Is Oracle Stock a Buy Right Now?

Oracle (NYSE: ORCL) stock has been a big disappointment for shareholders lately, plunging 48% over the past 12 months. The latest declines came after the company's leadership said Oracle will spend up to $70 billion in capital expenditures (capex) in fiscal 2027.

Tech investors have been growing impatient with what they believe is excessive artificial intelligence (AI) infrastructure spending, regardless of how that spending will translate into revenue and earnings. But Oracle's AI spending likely isn't as bad as investors fear. Here's why buying Oracle stock could be a smart move right now.

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Oracle's AI spending is directly tied to big contracts

It's important to note here that not all AI spending is bad. For example, Microsoft will spend about $175 billion this year on AI infrastructure -- a massive amount, indeed -- but that has helped accelerate its sales in return.

Microsoft's Azure cloud revenue increased 33% from last year to $100 billion in fiscal 2026, and paid seats for its Copilot agent rose nearly 50% to 30 million. The company also has $678 billion in revenue already under contract.

What does this have to do with Oracle? I think Microsoft's ramp-up in AI spending and the benefits it's reaping from AI sales and long-term contracts are similar to Oracle's opportunities.

While Oracle doesn't sell a frontier AI agent to customers, it does rent out data center computer power to enterprises and customers, similar to Microsoft's cloud sales with Azure.

And Oracle already has some massive contracts that it's fulfilling right now, too. In fiscal 2026, Oracle has $638 billion in remaining performance obligations (RPO), a 363% increase from 2025. These are binding contracts that represent a revenue backlog, not just potential sales.

To meet its customers' data center needs, Oracle is ramping up spending that will pay off soon. In fiscal 2027, $77 billion of these contracts will be realized as revenue, with an additional 34% coming in the next one to three years.

Oracle's margins will rebound

Oracle shareholders have also been disappointed that the company's gross margins are expected to decline slightly as it builds out its AI infrastructure. Gross margins were about 66% in the fourth quarter.

But the decline will be temporary, and management has said higher margins will return.

Oracle CFO Hilary Maxson said on the Q4 earnings call that fiscal 2027 gross margins "will step down due to timing for the ramp up of our data center projects," saying it will only be near-term pressure on its infrastructure margins, and that "we expect margin performance in infrastructure to improve rapidly as we reach full contractual revenue levels at our data centers."

All of which means that Oracle shareholders don't need to be concerned that Oracle's data center infrastructure will weigh down margins for very long.

With Oracle's large contracts and margins set to rebound after fiscal 2027, potential investors should take notice of the company's recent stock sell-off. Oracle is positioning itself for growth in the next few years, and its shares are cheap right now, with a price-to-earnings ratio of just 22, compared to the tech sector average of 39.

All of which means that Oracle looks like a good buy while its AI stock is on sale.

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