Oracle plans net capital spending of up to $70 billion in fiscal 2027, versus about $48 billion in fiscal 2026.
Oracle's free cash flow has been negative for six straight quarters.
About half of Oracle's $664 billion contract backlog isn't expected to become revenue until after August 2029.
Oracle (NYSE:ORCL) stock was near $130 as of this writing, about 60% off its record close at $328.33 on Sept. 10, 2025. Shares are down 33% this year, but the S&P 500 (SNPINDEX:^GSPC) returned about 13% through September.
A fall this sharp makes the stock tempting, and on earnings it's arguably cheap.
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But I think Oracle's cash flow statement matters more over the next few years. The cloud giant is spending more on its artificial intelligence (AI) build-out than its business takes in, and it plans to spend even more this fiscal year.
My prediction is that Oracle stock trails a fund tracking the S&P 500 from now through 2030.
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Oracle's spending already topped its cash last fiscal year (the company's fiscal years end May 31). Capital expenditures were $55.7 billion in fiscal 2026, while operating cash flow grew 54% to $32.0 billion. That put free cash flow at negative $23.7 billion.
The pace keeps rising. Quarterly capital expenditures climbed over most of fiscal 2026, from $8.5 billion in the first quarter to $18.6 billion in the third, before slipping to $16.5 billion in the fourth. Then spending surged to $28.5 billion in the fiscal first quarter of 2027 (the quarter ended Aug. 31, 2026), more than triple the year-ago total.
For the full fiscal year, management is still guiding for capital expenditures of $90 billion to $95 billion. Customers will fund part of that up front. Even net of customer prepayments and timing effects, though, Oracle plans to spend as much as $70 billion this fiscal year. On the same basis, it spent around $48 billion in fiscal 2026.
The prepayments didn't close the gap in fiscal Q1, either. Operating cash flow surged 184% year over year to $23.1 billion, lifted by $11.4 billion in customer prepayments. Free cash flow was still negative $5.4 billion, the sixth straight quarter below zero.
On Oracle's fiscal Q1 earnings call in September, an analyst asked when the company expects to return to positive free cash flow.
"We have not given a particular time frame on that," chief financial officer Hilary Maxson said. She added that each of Oracle's data center projects "by nature, is a strong free cash flow generating project" once it ramps up.
That could well be right. My worry is how long the ramp takes. Oracle's remaining performance obligations (contracted revenue it hasn't recognized yet) hit $664 billion at the end of fiscal Q1. But the company expects to recognize only around 13% of that in the next 12 months. About half isn't expected to become revenue until after August 2029.
The costs, of course, come sooner. Depreciation was $3.2 billion for fiscal Q1, up from $1.4 billion a year before. And Maxson said in June that gross margin would fall this fiscal year as new data centers ramp toward full revenue.
Until the cash turns, Oracle needs to fill the gap with fresh money. It sold $20 billion in stock under an at-the-market program in fiscal Q1, part of the approximately $40 billion in debt and equity it expects to raise this fiscal year.
Both cost shareholders something. The average number of shares outstanding grew 5% year over year in the quarter. And interest expense climbed 55% to $1.4 billion, mainly because of the $43 billion of bonds Oracle sold in fiscal 2026.
An index fund doesn't need its owners to wait out a build-out like this.
Sure, Oracle stock looks cheap. Using the $8.10 of non-GAAP (adjusted) earnings per share management expects this fiscal year, Oracle trades at around 16 times earnings, under the S&P 500's forward price-to-earnings ratio of nearly 19 as of Sept. 30.
Management's long-term outlook also calls for earnings per share to compound at 28% a year through fiscal 2030. If Oracle delivers that on schedule, I might be wrong.
But earnings per share isn't cash, and the earnings may keep getting spread over more shares for as long as the gap stays open.
So, will Oracle stock keep up with the index through 2030? I don't think so. The business may well be far bigger by then. But the stock needs to get through years of high spending, new debt, and new shares first, and I think an S&P 500 fund is the better bet over that time.
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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.