Oracle Beats Q4 With $638B Backlog but Drops 10% on $40B Capital Raise

Wednesday, Oracle (NYSE: ORCL) reported the best quarter in the company's history—the word "record" appeared 20 times in its earnings statement—beating expectations for revenue and earnings. It also raised its full-year EPS forecast and said it still owed $638 billion, which is 363% more than the same time last year.

After market hours, the stock dropped 10% on news of plans to raise an additional $40 billion through debt and private financing. This will add to the company's already over $162 billion in debt.

The way the market responded shows a real tension: Oracle is experiencing great growth, but the amount of money it needs to keep going keeps growing faster than anyone thinks it will.

The Quarter That Used "Record" Twenty Times

The top numbers were clear beats. Revenue of $19.18 billion, up 21% year-over-year, was higher than the $19.10 billion that most people expected. The adjusted EPS of $2.03 was higher than the $1.96 expectation. This is the third quarter in a row that the results were better than expected. The net income went up from $3.43 billion to $4.22 billion.

The part that stood out was cloud technology. Oracle Cloud Infrastructure (OCI) sales jumped 93% year-over-year to $5.8 billion, beating out all of its big cloud competitors, such as AWS (28% growth), Google Cloud (63% growth), and Azure. There was a 47% rise in cloud revenue to $9.91 billion, which is more than half of Oracle's total revenue for the first time.

The number that describes Oracle's AI infrastructure is the RPO number. The contracted-but-unrecognized revenue of $638 billion, up from about $130 billion a year ago and well above the $595.67 billion StreetAccount estimate, is a long-term revenue path that almost no other public company can match. Oracle increased RPO by $85 billion just in the last quarter. The company said that most of the RPO increases in Q3 and Q4 came from "large-scale AI contracts where the customer prepaid Oracle for the purchase of GPUs, or the customer bought and supplied the GPUs to Oracle." This structure "substantially reduces the amount of capital Oracle must raise to build out our AI data centers."

Guidance for Q1 FY2027 calls for revenue of about $19 billion, which would be 27% to 29% growth, and cloud revenue of $11.6 billion, which would be 61% growth. Adjusted EPS of $1.74, which was higher than the $1.68 average, is also expected.

Why the Stock Still Fell

Even though the overall beat, the selloff happened after hours because of two things.

The most detailed estimate for cloud revenue was missed. Oracle said that cloud income was $9.91 billion, but StreetAccount thought it would be $9.97 billion.

This is a small miss of about $60 million, or 0.6%. It's not even close to being noticeable; however, in a market where Oracle came in with high hopes after three straight beat-and-raise quarters, any drop in the highest-growth segment is seen as directionally important.

The bigger reason for the selloff is the news of the $40 billion cash raise. Oracle said it wants to raise $40 billion through debt and stock sales, such as the $20 billion share sale that was already revealed. Before that, $43 billion in loans and $5 billion in equity were raised in fiscal year 2026.

There is now more than $162 billion in debt, and more than $50 billion has been added in the last year alone. After taking into account $20–25 billion in customer prepayments, net capex for fiscal 2027 should be around $70 billion.

Oracle had negative free cash flow of $23.7 billion for the whole fiscal year. This was because depreciation almost doubled to $7.62 billion and capital spending jumped 162% to $55.7 billion.

The company is investing too quickly for its working cash flow to keep up, which is why it keeps having to raise money.

The OpenAI Concentration Risk

Analysts at Bank of America said that OpenAI makes up more than half of Oracle's $638 billion RPO. That means that OpenAI needs to continue to grow, stay solvent, and keep its purchase promises in order to earn the $300 billion in contracted but unrecognised income.

According to earlier reports, OpenAI is making about $2 billion a month, but it hasn't yet made a profit. For a company that wants to raise $40 billion and owes $162 billion, giving away half of its future income to a single pre-profit counterparty is a concentration risk that institutional investors need to carefully consider.

Oracle's RPO changes from a revenue delivery to a booking revision if OpenAI's revenue growth slows down or its capital structure gets stressed before its IPO.

CEO Clay Magouyrk said on the analyst call that Oracle plans to bring online "almost one gigawatt worth of computing power in the current quarter" — roughly equal to everything Oracle deployed in all of fiscal 2026. The acceleration in deployment matches the acceleration in committed RPO.

The Bull Case That Still Exists

Even with the drop in price after hours, Oracle trades at about 25 times forward earnings, which is less than the multiples of most AI infrastructure peers that offer similar cloud growth rates. With 93% growth in sales, OCI has the fastest growth rate among the big cloud companies.

The $638 billion RPO, which gained $85 billion in just one quarter, makes it possible to see future revenues, which takes away the doubt about short-term demand. The customer-prepaid GPU structure lowers Oracle's direct cash needs for building a data center. The fact that Q1 guidance was higher than expected shows that growth is not slowing down.

The board announced a $0.50 quarterly dividend that will be paid out on July 24. The payout ratio is about 40%, which means that the income has a lot of room to grow even as capital expenditures rise.

The sell-off at Oracle is a response to the company's capital structure, not to its business basics. There is a $638 billion backlog because the company is cutting its cloud income at a rate that is 47% faster than any competitor and building OCI faster than any other company.

The market is worried that OpenAI will need more and more money to complete these contracts—$40 billion more in a company that already owes $162 billion—and that half of the backlog depends on the company being successful as a public company.

The 25x forward earnings value gives the company a safety margin compared to its peers if the OpenAI risk is resolved positively and the debt load is shown to be manageable at the current interest rates. The Q1 cloud revenue number, which is projected to be $11.6 billion, will be the first real test of how quickly the RPO acceleration is turning into recognised revenue.