Oracle's Stock Is Plummeting. Is This an Opportunity or a Red Flag?
Key Points
Oracle's plans to raise $40 billion through debt and equity sparked investor anxiety.
The company's remaining performance obligations reached a record $638 billion.
Shares fell more than 12% after earnings were announced.
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Oracle's (NYSE: ORCL) stock is getting pummeled after reporting its fourth-quarter and full-year fiscal 2026 earnings. Shares fell more than 12% after the software giant disclosed its plans to raise $40 billion through debt and equity financing. Only $20 billion of that raise had been previously announced. Oracle's free cash flow is negative for the fiscal year, with a cash burn of $23.7 billion.
The question for investors is whether Wall Street's expectations for tech companies have become untenable, or if this is a red flag for Oracle shareholders.
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The report wasn't bad in any sense. The tech company had record earnings per share, total revenues, and remaining performance obligations for Q4 2026. For the full fiscal year, it was a banner period, with revenues reaching $67.4 billion, a 17% increase. Earnings per share (EPS) were also up 34% to $5.83.
Oracle's outlook for fiscal 2027 is also strong, as the company raised its EPS guidance to $8.05. It also reaffirmed revenue expectations at $90 billion.
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To make money, you have to spend money, as the adage goes, and Oracle is doing a lot of that. Capital expenditures exceeded company guidance, and this, along with the additional $40 billion cash commitment for 2027, is what spooked investors.
Still, with an enormous backlog of business, the steep, rapid decline in the stock price feels like an overreaction. It is also similar to what happened with Broadcom (NASDAQ: AVGO) recently. Broadcom's quarterly earnings were strong but fell short of the extraordinarily high bar set by Wall Street analysts. The stock fell precipitously.
For buy-and-hold investors, Oracle's fundamentals remain intact. The sell-off is more of an opportunity than a warning flag.
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Catie Hogan has positions in Oracle. The Motley Fool has positions in and recommends Broadcom and Oracle. The Motley Fool has a disclosure policy.
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