Oracle's Sales Are Soaring, But Its Stock Is Falling. Time to Buy?

Shares of Oracle (NYSE: ORCL) have hit a brutal rough patch in early 2026. After logging astronomical gains last year and reaching a 52-week high of $345.72 in September, the tech giant's stock has plunged. As of this writing, shares are down about 26% year to date and have shed more than half their value since their September peak.

This sharp decline occurs as a handful of once-soaring artificial intelligence (AI) stocks pause (and, in some cases, pull back) to cool off after their massive rallies. But looking at Oracle's latest financials, the company's core operations are generating incredibly strong results.

So, why did shares fall despite the company reporting record sales growth?

It appears to boil down to the staggering cost of building out the infrastructure required to support the AI boom. With the market grappling with Oracle's massive new spending plans and recent layoffs, investors have to decide whether this pullback is really a buying opportunity or just a stock move accurately reflecting risks.

Image source: The Motley Fool.

Staggering cloud growth

If anyone was worried that Oracle's expansion was stalling, the company's fiscal 2026 third-quarter results put those fears to rest.

Highlighting the company's underlying momentum, Oracle's total fiscal third-quarter revenue rose 22% year over year to $17.2 billion. The growth driver? Insatiable demand for its cloud services.

Total cloud revenue jumped 44% to $8.9 billion. But the real star of the show was Oracle's cloud infrastructure business. Revenue for this critical segment skyrocketed 84% year over year to $4.9 billion, marking a significant acceleration from previous quarters.

This top-line momentum translated nicely to the bottom line, with non-GAAP (adjusted) earnings per share rising 21% to $1.79. It was the first time in over 15 years that Oracle achieved 20% or better growth in both organic revenue and non-GAAP earnings simultaneously.

However, the most compelling aspect of Oracle's trajectory is its massive pipeline. The tech giant's remaining performance obligations (RPO) -- a metric that captures contracted sales not yet recognized -- reached $553 billion in fiscal Q3. That is a jaw-dropping 325% year-over-year increase, driven almost entirely by large-scale AI agreements.

A costly AI gamble

But this is where things get complicated, and why investors have been selling the stock.

The drawback to having a $553 billion backlog is the heavy investment required to grow into that opportunity. Oracle is pouring cash into expanding its data center footprint to meet the ambitious needs of hyperscalers and AI developers.

In total, Oracle has plans to raise $45 billion to $50 billion in debt and equity financing in calendar 2026 alone to fund its aggressive capital expenditures. This could pressure free cash flow and raise the stock's risk profile.

Adding to the unease, Oracle recently initiated a restructuring plan focused primarily on employee severance, cutting thousands of jobs -- a move that will free up cash and streamline operations. While cost-cutting can improve margins in the long term, it signals how heavily the company's AI spending is weighing on its current financial flexibility.

Investors appear worried that Oracle is over-leveraging itself in a fast-changing market. If AI demand unexpectedly cools just as this new capacity comes online, Oracle could find itself saddled with massive debt and underutilized data centers.

Is it time to buy?

With all of this said, does a more than 50% drop from its peak make Oracle stock a bargain today? Or is the capital-intensive nature of the company's growth plans increasing the stock's risk profile too much?

Prior to the sell-off, Oracle commanded a lofty multiple that left no margin for error. Any sign of strain on free cash flow or signs of a cash crunch were bound to cause a drastic downward rerating of the stock -- and that is exactly what happened.

Following the drop, however, the tech stock is currently valued at approximately 18 times forward earnings. This is a much more reasonable price tag that factors in the risks of Oracle's capital-intensive AI pivot.

And, to its credit, Oracle isn't building this infrastructure blindly.

Management has noted that a significant portion of its new capacity is already backed by customer contracts, with many partners either funding equipment upfront or supplying their own hardware. This helps de-risk the balance sheet.

Ultimately, I view Oracle as a high-risk, high-reward AI play. The business is obviously executing extremely well on the sales front -- and a $553 billion backlog is -- to a degree -- somewhat of a safety net. But the aggressive debt and capital expenditure load mean there is very little room for error.

For investors who believe the AI infrastructure boom is still in its early innings, this massive pullback offers a very reasonable entry point. If you decide to buy the dip, however, it might be wise to keep your position relatively small until Oracle proves it can successfully turn that massive backlog into robust, sustained free cash flow.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.