Oracle Shares Are Down 24% So Far in 2026 Amid AI Bubble Fears. Can It Still Come Out on Top?

Shares of Oracle (NYSE: ORCL) have fallen over 24% so far in 2026, as investors grow increasingly concerned about the company's aggressive artificial intelligence (AI) investments.

Oracle's AI infrastructure build-out is backed by plans to raise up to $50 billion in debt and equity. That has sparked fears about a dramatic increase in the company's debt and the possibility of negative free cash flow over the next few years. Investors are also concerned about whether the company can execute at scale and convert these investments into durable, high-return cash flows.

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Multiple growth tailwinds

Oracle exited its fiscal 2026's third quarter (ended Feb. 28) with remaining performance obligations (RPO, a measure of contracted backlog) of nearly $553 billion, up 325% year over year. Demand for AI infrastructure continues to exceed available supply. As a result, management has indicated that Oracle is not building speculative capacity but is scaling primarily to meet this contracted AI demand. A significant portion of this capacity is already contracted and, in some cases, supported by partner or customer funding, which helps reduce balance sheet risk. If these contracts convert as expected, Oracle's current valuation may see significant improvement.

Oracle's operating performance further highlights the extent of AI-driven demand. In the third quarter, the company's total revenue rose 22% year over year to $17.2 billion, while generally accepted accounting principles (GAAP) earnings per share increased 24% year over year to $1.27. Cloud revenue soared 44% year over year to $8.9 billion, including $4.9 billion from cloud infrastructure and $4.0 billion from cloud applications. Oracle's multi-cloud database business grew by a striking 531% year over year, highlighting the strong enterprise demand to run Oracle's database across multiple cloud platforms.

The company's AI infrastructure business is already generating margins above 30%, while its higher-margin database services business achieves gross margins of 60% to 80%. Management claims that the company is benefiting from the "halo effect," in which AI infrastructure adoption is driving broader demand for Oracle's cloud services, including databases and applications. This can improve overall revenue visibility and long-term profitability.

Large-scale AI deals and cost-cutting measures

Oracle has also secured several prominent AI deals and partnerships.

In September 2025, the company signed a $300 billion, five-year deal for compute capacity with OpenAI. The company is also participating in the Stargate initiative, a project valued at up to $500 billion to build around 10 gigawatts of data center capacity. These partnerships position Oracle among a small group of companies involved in the global AI infrastructure build-out.

The company is also cutting thousands of jobs and redirecting resources toward AI and cloud investments. While this creates near-term disruption, it can eventually improve the company's profit margins and free cash flow.

A high-risk, high-reward AI pick

Oracle is gradually evolving from a traditional enterprise software provider into a full-stack AI infrastructure company. While the opportunity is massive, the company's success depends heavily on its execution capabilities.

Shares trade at 18.3 times forward earnings, which appears reasonable. If the company can deliver on its backlog and maintain its current growth trajectory, the recent stock price decline could prove to be an attractive entry point for long-term investors.

Manali Pradhan, CFA 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.