Oracle climbs as AI-fueled backlog growth deflects spending worries

On September 11, Oracle announced that restructuring costs, linked to its AI-focused plan involving job cuts, will increase by approximately $700 million to reach around $2.8 billion over the fiscal year 2026. This comes amid a volatile period for the company's stock, with investors torn between optimism about its AI-driven growth and doubts over how it finances this expansion.

Shares of Oracle surged by up to 7.8% after a $26 billion rise in its revenue backlog, alleviating some concerns about its debt-driven spending. However, the stock later slipped about 2%, as analysts noted that a cash flow recovery is still pending. Oracle's backlog, valued at roughly $664 billion, is expected to convert into sales within the next 36 months, with much of the new revenue not necessitating additional capital.

The company relies on client prepayments and customers' own chip supply to expand capacity. Despite these efforts, Oracle's shares have fallen about 23% this year, contrasting with a nearly 12% increase in the S&P 500 index. Concerns about Oracle's costly AI bets and the viability of its traditional software business in the AI era have driven this downward trend.

Even with customers asked to partially fund the necessary technical hardware, Oracle's cash flow profile is not expected to improve anytime soon, according to Morningstar analyst Luke Yang. The company's efforts to raise $40 billion through debt and equity financing in its current fiscal year, including a $20 billion stock sale completed in Q1, have not alleviated concerns about financing and data center profitability, particularly as component costs surge and there is growing backlash against data center development in the U.S.