Better Buy After the Cloud Stock Sell-Off: Oracle or Salesforce?

Investors hunting for bargains in cloud computing suddenly have two big ones to consider. Enterprise software company Oracle (NYSE: ORCL) tumbled this week after its fiscal fourth-quarter report (the period ended May 31, 2026) paired record results with a steep bill for its artificial intelligence (AI) data center expansion. Salesforce (NYSE: CRM), meanwhile, just touched a 52-week low, with shares down about 37% year to date as of this writing amid worries that AI could disrupt traditional subscription software.

The two sell-offs have very different causes. One company is being punished for spending too much on AI. The other is being punished by the fear that AI undermines its core product.

So, which beaten-down stock is the better buy?

Let's size up each company and then pick a winner.

Image source: Getty Images.

Oracle

Oracle's growth right now is impressive. Fiscal fourth-quarter revenue rose 21% year over year to $19.2 billion, with total cloud revenue jumping 47% and cloud infrastructure revenue surging 93%. Even more striking, the company's remaining performance obligations (contracted revenue it hasn't yet delivered) ended the quarter at $638 billion, up from $553 billion just three months earlier. For fiscal 2027, management confirmed its forecast of about $90 billion in total revenue, implying growth of about 34%.

But delivering that backlog is brutally expensive.

Oracle generated $32 billion in operating cash flow in fiscal 2026, yet its free cash flow was negative $23.7 billion as it spent heavily on data centers. Oracle raised $43 billion in debt and $5 billion in equity during the year, and it expects to raise about $40 billion more in fiscal 2027. On the company's fiscal fourth-quarter earnings call, management indicated net capital spending could reach about $70 billion this fiscal year.

Even after this week's drop, the stock's valuation isn't exactly cheap. Shares trade at a price-to-earnings ratio of about 32 and a forward price-to-earnings ratio of about 23 as of this writing. Investors, in other words, are still paying a premium for growth that requires enormous amounts of borrowed money to deliver.

Salesforce

The software-as-a-service company's story is quite different.

Growth is the concern -- fiscal first-quarter revenue (the period ended April 30, 2026) rose 13% year over year to $11.1 billion, helped along by the company's Informatica acquisition. But the business generates substantial cash. First-quarter free cash flow was $6.6 billion, and the company returned $27.5 billion to shareholders during the period, including a $25 billion accelerated share repurchase funded largely with new debt.

Interestingly, the AI fears hammering the stock haven't shown up in Salesforce's AI results. Agentforce, the company's AI agent product, reached $1.2 billion in annual recurring revenue in the fiscal first quarter, up 205% year over year.

"We remain confident in delivering organic revenue acceleration in the second half of FY27, driven by growth in Sales, Service, Slack, Agentforce, and Data 360," said Salesforce president and chief financial and operating officer Robin Washington in the company's fiscal first-quarter earnings release.

With the stock near its 52-week low, Salesforce trades at a price-to-earnings ratio of about 19 as of this writing -- a good-looking valuation considering the company's strong business economics and its solid growth. And this valuation is well below what investors are paying for Oracle.

The better buy

For me, this one comes down to risk versus price.

Oracle offers the faster growth by far, and its $638 billion backlog is a remarkable asset. But converting it into profit demands years of heavy spending, financed with more debt and equity, before shareholders see the payoff. And most of the recent additions to that backlog have come from large AI contracts, concentrating the risk.

Meanwhile, Salesforce makes money today and returns it to shareholders, all while growing its AI products at a triple-digit rate. Yet the market is pricing the stock as if its best days are behind it.

Neither choice is risk-free. If AI demand keeps compounding for years, Oracle could deliver far greater upside than its steadier rival. And if AI agents really do erode demand for subscription software over time, Salesforce's discount could prove deserved.

But at today's prices, I think Salesforce is the better buy. Paying about 19 times earnings for a highly profitable business with accelerating AI revenue strikes me as more attractive than paying a premium for a company that must borrow billions to fund its future. Sometimes the better opportunity is the one the market seems to hate the most.

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