Key Points

Oracle data centers draw interest from leading AI firms including OpenAI thanks to rapid speeds and competitive pricing.
Oracle holds an order backlog valued at $638 billion from clients awaiting additional data center capacity, yet several concerns surround this figure.
Oracle shares have declined 44 percent from last year's peak, though the valuation may not represent a bargain.

At present 12 American public companies hold market values of $1 trillion or higher, with SpaceX as the latest entrant to this select group. Software and cloud infrastructure leader Oracle came close to entry late last year when its market capitalization reached $935 billion, yet its shares have since stalled.

Oracle runs some of the quickest and most affordable data centers suited for AI training and inference tasks, backed by a massive $638 billion order backlog for computing resources. Still, questions persist over whether certain major clients can meet their commitments, prompting investors to proceed carefully.

Oracle shares sit 44 percent below their record peak, and the pullback may not signal an attractive entry point.

Image source: The Motley Fool.

A leader in the AI infrastructure race

Oracle is expanding data centers rapidly to meet computing demand from AI clients such as OpenAI, Meta Platforms, and Elon Musk xAI. These facilities house thousands of GPUs sourced from Nvidia and Advanced Micro Devices.

Oracle holds edges versus rival cloud operators. It emphasizes automation to activate sites quicker than peers dependent on manual processes. It also employs its own RDMA networking approach that moves data among GPUs more efficiently than standard Ethernet setups.

These features deliver quicker processing and reduced expenses, appealing to AI developers who pay for capacity by the minute.

Oracle has assembled large GPU clusters that let users access over 131,000 latest chips from Nvidia and AMD. This capability explains why frontier AI organizations like OpenAI rely on its infrastructure.

A big chunk of Oracle backlog stems from one client

Oracle posted $19.2 billion in total revenue for its fiscal 2026 fourth quarter ended May 31, marking a 21 percent rise from the prior year. OCI revenue reached $5.8 billion and expanded 93 percent, underscoring strong demand for data center resources.

The standout figure was $638 billion in remaining performance obligations, up 363 percent year over year. RPO represents contracted services not yet delivered and functions like an order backlog. Oracle views the amount as a reliable gauge of upcoming revenue, but investors should note several caveats.

Reports indicate roughly $300 billion of the RPO traces to OpenAI alone. The startup secured $122 billion in fresh capital in March yet generates around $25 billion in annualized revenue while still incurring losses. It remains uncertain whether OpenAI can honor such a large pledge to Oracle, particularly given comparable commitments to other providers including Microsoft.

Oracle anticipates converting only 12 percent of RPO into revenue within the next 12 months and another 34 percent in the following 24 months. Thus less than half may materialize over three years, a broad span in the fast evolving AI sector. With early signs of softening demand, RPO may prove less predictive than hoped.

Oracle also carries $122 billion in long term debt and recently outlined plans to raise another $40 billion via debt and equity. Heavy investment in new AI data centers introduces risk should the large RPO fail to convert into revenue.

Oracle stock appears reasonably valued

Oracle delivered GAAP earnings of $5.83 per share in fiscal 2026, placing its shares at a P/E ratio of 31.6. This sits slightly below the Nasdaq 100 index P/E of 34.6, suggesting Oracle trades near fair value versus major technology peers.

Analysts project only 7.7 percent earnings growth for fiscal 2027, limiting near term upside potential. Forecasts call for 45.7 percent growth in fiscal 2028, yet confidence in that outlook is tempered by the issues noted above.

Investors may prefer a cautious stance toward Oracle. Sustained positive results over coming quarters could create an opening for a long term holding at an appropriate price.

Should you buy stock in Oracle right now?

Before purchasing Oracle shares, note the following.

The Motley Fool Stock Advisor team recently named the 10 best stocks for investors to buy now, and Oracle did not appear on that list. The selected 10 stocks may deliver substantial returns ahead.

Netflix joined a similar list on December 17, 2004. An investment of $1,000 then would be worth $433,268 today. Nvidia appeared on April 15, 2005, turning $1,000 into $1,259,391.

Stock Advisor has delivered average returns of 935 percent, far outpacing the 206 percent gain of the S and P 500. Review the latest top 10 list through Stock Advisor and join a community of individual investors.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.