Oracle Has $638 Billion of Contracted Backlog and a $430 Billion Stock

Here are two numbers that shouldn't normally sit next to each other. Oracle (NYSE:ORCL) ended fiscal 2026 with $638 billion of remaining performance obligations, which is contracted work its customers have signed up for that hasn't yet become revenue. The company's market value, meanwhile, is about $430 billion, with the stock near $150 as of this writing -- down about 57% from its high of $345.72.

In other words, Oracle's stock is worth roughly $200 billion less than the revenue its customers have already contracted to hand over. And even adding the company's roughly $98 billion of net debt to the price, the market values the whole business about $110 billion short of the backlog.

When Oracle revealed the $638 billion figure in June, alongside its fiscal 2026 fourth-quarter results (the fiscal year ended May 31), the company's market value stood near $580 billion. The stock has slid since, and the gap has only widened.

What is the market saying with a price like this? I think the answer comes down to two of Oracle's own disclosures. One is how slowly the backlog converts. The other is what serving it costs.

Image source: Getty Images.

A backlog that converts slowly

The backlog itself is astonishing. Remaining performance obligations grew 363% year over year and rose $85 billion in the fiscal fourth quarter alone, driven by demand for cloud infrastructure to train and run artificial intelligence (AI) models.

And the revenue behind it is showing up: Oracle's cloud infrastructure revenue grew 55%, 68%, 84%, and then 93% year over year across fiscal 2026's four quarters. The business accelerated all year.

But contracted is not the same as soon. Management said on the June earnings call that it expects 12% of the backlog to be recognized as revenue over the next 12 months, and another 34% between 13 and 36 months. That works out to about $77 billion arriving within a year, and roughly $290 billion inside three years. More than half of the total sits further out than that.

For context, Oracle confirmed guidance for about $90 billion of total revenue in fiscal 2027, up from $67.4 billion in fiscal 2026, with fiscal first-quarter revenue expected to grow 27% to 29%. The backlog supports years of growth like that. It just can't be pulled forward.

Serving it costs real money

The second disclosure is what those contracts require. Oracle generated a record $32 billion of operating cash flow in fiscal 2026, up 54%. It spent all of that on data centers, and then some. Free cash flow came in at negative $23.7 billion.

So the company raised $43 billion in debt and $5 billion in equity during the fiscal year, and it expects to raise approximately $40 billion more in fiscal 2027 through a combination of debt and equity, including a previously announced $20 billion at-the-market stock program.

To the company's credit, its customers are helping carry the load. Oracle said the prepaid and customer-supplied hardware portions of its large AI contracts now total $75 billion, which "substantially reduces the amount of capital Oracle must raise to build out our AI datacenters."

Still, the shape of the business has changed. A company that used to throw off cash now consumes it. And each contracted dollar of AI infrastructure revenue arrives with heavy costs attached -- the graphics processing units, the buildings, and the electricity, plus the interest on the borrowing that funds them.

So is the stock cheap?

A backlog bigger than the market cap sounds like an obvious bargain. It isn't, necessarily. Backlog is revenue, not profit, and the market's judgment is about what that revenue will be worth after Oracle pays for the infrastructure that produces it.

The stock trades at about 26 times earnings, and at about 19 times the $8.05 of adjusted earnings per share management has guided to for fiscal 2027. For a company guiding revenue up 34% this fiscal year, that isn't an expensive price. Arguably, it reflects doubt about the margins on AI contracts and about the years of heavy borrowing and stock sales still ahead.

Ultimately, I'd stay on the sidelines here. The contracted demand is enormous, but the economics of serving it are still being proven, and the balance sheet is absorbing tens of billions of dollars of strain in the meantime.

What nobody can see yet is how much profit all that contracted revenue leaves behind once the data centers are paid for. I'd want to see some of it first.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.