Oracle rises as AI-fueled backlog growth deflects spending worries

Oracle reported on September 11 that restructuring costs, tied to a plan involving job cuts, will increase by approximately $700 million. The company aims to curb expenses while investing heavily in AI services. Oracle's fiscal 2026 restructuring plan now totals roughly $2.8 billion, encompassing severance, contract terminations, and other exit expenses.

The plan is partially driven by AI adoption across certain operations. Amidst a volatile stock period, investors are divided between optimism regarding Oracle's AI-driven growth and apprehension over its funding methods. The stock surged as much as 7.8 percent on Friday following a $26 billion boost in revenue backlog, alleviating some debt-fueled spending concerns.

However, it later fell about 2 percent as analysts noted that cash flow recovery is still pending. Oracle's backlog, valued at roughly $664 billion, is expected to convert into sales within the next three years, with much of the new revenue not demanding additional capital. The company relies on client prepayments and customers' chip supply to expand capacity.

Despite the stock's decline, Oracle's shares have outperformed the S&P 500 index, which rose by nearly 12 percent this year. Morningstar analyst Luke Yang expressed that Oracle's cash flow profile is likely to remain unchanged in the near term. Analysts highlighted that while Oracle faces financing and data center profitability risks due to soaring component costs and U.S. backlash against data center development, the positive aspects of the business have been overshadowed by concerns.

Oracle intends to raise $40 billion through debt and equity financing in the current fiscal year, including a $20 billion stock sale completed in Q1. The company reported a negative free cash flow of $5.40 billion, surpassing analysts' average estimate of $9.56 billion in cash burn.