Oracle 2Q26 Earnings: AI Growth Vs Debt Risk

(MENAFN- DailyFX (IG)) When is Oracle reporting earnings?

Oracle will release its Q2 fiscal 2026 results after US market closes on Wednesday 10 December. A conference call will be held at 4.00pm Central Time.

Q1 record backlog sparks investor frenzy

Oracle's first-quarter results, announced in September, delivered a significant positive surprise that outweighed modest revenue shortfalls. Although revenue of $14.9 billion and adjusted earnings per share (EPS) of $1.47 both marginally underperformed analyst consensus, the company disclosed a transformational development that propelled shares 30% higher – their strongest single-session gain since 1999.

The primary catalyst was Oracle's unprecedented cloud services pipeline. Remaining performance obligations (RPO) surged 359% year-on-year (YoY) to $455 billion. This substantial backlog, predominantly driven by four multi-billion-dollar contracts with three clients, signals considerable future revenue conversion potential. Cloud Infrastructure (OCI) revenue expanded 55% to $3.3 billion, whilst total cloud revenue advanced 28% to $7.2 billion.

Oracle's forward guidance proved equally remarkable. Management projected OCI revenue would reach $18 billion in fiscal 2026 – representing 77% growth – before scaling to $144 billion by fiscal 2030. Then-chief executive officer Safra Catz characterised it as an 'astonishing quarter', observing that demand for Oracle Cloud Infrastructure continues to build momentum.

The debt elephant in the room

Despite the compelling growth narrative, investor confidence has deteriorated markedly since September. The principal concern centres on the company's evolving financial structure.

Oracle's free cash flow turned negative since fiscal Q4 2025. The company is reportedly pursuing approximately $38 billion in additional debt financing to fund its AI infrastructure development, supplementing the roughly $105 billion outstanding as of end-August. Capital expenditure for fiscal 2026 is projected at $35 billion, representing 65% growth and substantially exceeding the company's historical investment patterns.

Credit markets are signalling heightened caution. Oracle's five-year credit default swaps have climbed to their highest level since 2009 at 1.28 percentage points per year according to ICE Data Services on 2 December, whilst rating agencies Moody's and S&P have issued negative outlooks and cautioned that leverage could exceed 4x debt-to-EBITDA by 2027 – 2028. Both agencies have flagged the prospect of a downgrade towards non-investment grade status should Oracle's debt accumulation outpace earnings growth.

The OpenAI partnership highlights concentration risk

Central to Oracle's AI infrastructure strategy is its collaboration with OpenAI through the $500 billion Stargate Project. Oracle has secured a reported $300 billion, five-year contract with OpenAI – an arrangement that could represent nearly one-third of Oracle's revenue by 2028.

This concentration creates substantial counterparty exposure. Analysts question whether OpenAI, notwithstanding its rapid expansion, possesses the capacity to honour commitments approaching $60 billion annually. Operational complexities also emerge as the project encompasses multiple stakeholders including Oracle, SoftBank, OpenAI and MGX. Additionally, legal experts from Yale University have raised antitrust considerations regarding the collaboration amongst AI industry leaders.

What to watch in Q2

For the 10 December earnings announcement, Wall Street consensus anticipates adjusted EPS of $1.64 (+11% YoY) on revenue of approximately $16.2 billion (+15% YoY). However, investors will likely prioritise management commentary over quarterly metrics, focusing on three critical questions:

First, can Oracle demonstrate that its substantial RPO backlog is converting into recognised revenue? Second, what specific measures does management intend to implement to manage debt levels and capital expenditure whilst maintaining investment-grade credit ratings? Third, can Oracle provide tangible evidence that OCI growth is accelerating as projected, with demonstrable traction beyond the OpenAI relationship?

Oracle's transformation into an AI infrastructure provider represents a bold strategic repositioning. Whether this initiative delivers sustainable returns, or whether the company has assumed excessive financial leverage, may become clearer when management addresses investors this week. For now, Oracle stands at the crossroads of extraordinary opportunity and substantial risk.

Divided analyst perspectives reflect uncertainty

33 out of 46 Wall Street analysts assign 'strong buy' or 'buy' ratings according to LSEG data. However, 13 analysts have assigned 'hold' or 'sell' ratings, reflecting divergent views on the company's prospects.

The average target price of $337 remains notably optimistic, positioned 55% above current levels, despite recent downward revisions.

Figure 1: Wall Street analyst estimates Source: LSEG, as of 8 December 2025 Source: LSEG, as of 8 December 2025 Technical analysis indicates critical support test

Oracle's share price delivered strong performance during the first nine months of 2025 but has declined approximately 37% since reaching its September peak, eliminating most post-earnings gains.

The daily price chart reveals a classic confluence support pattern. Following contact with two significant support levels – the 200-day moving average (MA) and the ascending trendline established since April – share prices have stabilised, generating a positive moving average convergence divergence (MACD) crossover.

Should the earnings announcement deliver positive surprises, Oracle's share price could advance towards $250 near the 100-day MA. Conversely, should results disappoint and the share price fail to maintain support above the 200-day MA, a retest of the $185 lows becomes probable.

Figure 2: Oracle's daily price chart Source: TradingView, as of market close on 7 December 2025. Past performance is not a reliable indicator of future performance. Source: TradingView, as of market close on 7 December 2025. Past performance is not a reliable indicator of future performance.

• This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

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