Could Oracle's Debt Load Derail Its AI Cloud Ambitions?

Oracle (NYSE: ORCL) is down 56% from its peak about a year ago. The company's stock surged after signing a $300 billion agreement with OpenAI. However, doubts emerged about whether OpenAI could fulfill its obligations under the agreement, which sent Oracle stock tumbling.

Also, Oracle has had to borrow heavily to build the infrastructure to fund that deal, which could cause investors deep pain if that investment does not yield positive returns. Nonetheless, even if OpenAI falters, I do not think Oracle's debt load will derail its cloud ambitions, and here's why.

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Oracle and its debt

Admittedly, Oracle has taken on significant risk by borrowing heavily to fund its infrastructure build-out. As of the first quarter of fiscal 2027 (ended Aug. 31), its total debt was just over $125 billion.

Considering that the company's book value is only about $67 billion, that places considerable strain on its balance sheet. If the industry suffered a severe AI bust, it could undermine the investment case in Oracle stock.

Also, the company spent over $28 billion on capital expenditures (capex) in fiscal Q1 alone, and that occurred after capex was nearly $56 billion in fiscal 2026. Although demand for AI infrastructure is high and growing fast, a sudden reversal of this trend could further spook Oracle's investors.

Nonetheless, even if the feared AI bust occurs, investors should remember that the dot-com bust did not destroy the internet. Likewise, AI is unlikely to disappear, even if its development pauses for a time.

Moreover, investors who follow Oracle closely might notice that the AI agreements have not stopped with OpenAI. Since it announced the OpenAI deal one year ago, its backlog has risen by $209 billion to $664 billion. That increase is more than two-thirds the size of the OpenAI deal, and could make the database giant one of the best-performing AI stocks through 2028 and possibly beyond.

Furthermore, Oracle's financial performance should reassure investors, particularly its results in fiscal Q1. Revenue of just over $19 billion increased by 30%. Growth in the cloud segment, which handles its AI infrastructure, was 60%.

Operating expense growth was 18%, boosting operating income by 57% to over $6.7 billion. In comparison, the interest expense for the quarter was about $1.4 billion, more than enough for Oracle to earn a $4.7 billion quarterly profit.

Additionally, Oracle holds around $37 billion in cash and marketable securities. Hence, the company appears to be in a financial position to invest in AI while being able to pivot should the industry suddenly go bust.

Investing in Oracle stock

Oracle's heavy debt load makes it a riskier stock, but I believe the debt is unlikely to derail the company's AI cloud ambitions.

Indeed, carrying nearly twice its book value in debt increases the risk of investing in a company, to the point that it is probably not suitable for more conservative investors.

However, even amid heavy spending, the growing backlog -- with or without OpenAI -- makes it likely that its newly built infrastructure will continue to attract the paying clients that have fueled Oracle's recent growth.

Hence, between its current profitability and ability to pivot, investors should expect the cloud stock to eventually achieve its AI ambitions.

Will Healy 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.