Oracle’s cloud infrastructure revenue is soaring, driven by high demand for AI computing. However, heavy data-center spending is impacting free cash flow and increasing leverage on the balance sheet. Despite strong growth, the stock’s valuation may not fully account for these risks. Shares have dropped 45% from their peak, raising concerns about sustainability and profitability.

In fiscal Q2, Oracle reported a 14% increase in revenue to $16.1 billion, led by a 34% growth in total cloud revenue to $8.0 billion. Cloud infrastructure revenue surged 68% to $4.1 billion, highlighting accelerating growth in this key segment. The company’s remaining performance obligations reached an astonishing $523 billion, up 438% year over year.

Massive capital expenditures of around $21.2 billion in fiscal 2025 and $12 billion in fiscal Q2 are fueling Oracle’s growth but causing negative free cash flow. The company plans to spend up to $50 billion in fiscal 2026 on data centers to support AI demand. With total debt at $111 billion and cash reserves of $20 billion, Oracle faces significant leverage.

Despite a recent decline, Oracle’s stock is trading at a price-to-earnings ratio of about 35, indicating high expectations for future profits. The company’s AI infrastructure investments are driving cloud revenue growth, but concerns remain about the sustainability of data-center spending. Investors should carefully evaluate the risks and potential rewards before buying Oracle stock.

Read more at Nasdaq: Down More About 45% From Recent Highs, Is Now the Time to Buy Oracle Stock?