Oracle is trying really hard to convince investors it won’t have a debt problem

Oracle is bending over backward to convince investors that it won’t be strained by the heavy capital outlays it needs to fund its AI transition, and that its giant backlog of remaining performance obligations (RPO) represent money in the bank.

In its earnings report yesterday, the company noted a record level of RPO: $638 billion. It also said it plans to raise $40 billion in debt and equity this fiscal year, half of which has already been raised in equity.

That means more debt issuance — potentially as much as $20 billion of it — is coming, and Wall Street’s ears certainly perked up at that mention. Wedbush Securities’ Dan Ives wrote, “Adding more debt to the capital structure is not a move the Street wants to see and continues to create this ‘tug of war’ on the name between RPO and the necessary capital raises/AI datacenter buildout in the near-term.”

Remember: investors’ concerns about Oracle’s debt are a big part of what drove the stock down from its peak in September after those mammoth future revenue contracts boosted the company’s shares. Investors have questioned whether Oracle can handle that backlog and quickly turn it into a high-margin business, whether the companies making those contracts — like OpenAI — are good for the money, and how much money Oracle will need to get there.

As a way to assure investors, the company resorted to a couple of interesting flourishes:

1. Oracle said that $75 billion of RPO contracts were either prepaid or included “customer-supplied hardware” — referring to big customers bringing their own GPUs, which in this economy are better than money. “This substantially reduces the amount of capital Oracle must raise to build out our AI datacenters,” the company said in its press release.

2. The company introduced “net cash outlay for capital expenditures,” a metric designed to soften the blow of its true capex spending. While the company’s net cash outlay for capex was $70 billion, it said it would spend another $20 billion to $25 billion that would be funded straight from the customers themselves. In other words, its FY 2027 capex is actually going to be as much as $95 billion — much higher than the $61.5 billion analysts had expected or the $55.7 billion it spent in FY 2026.

As Chief Financial Officer Hilary Maxson put it, “We did introduce this quarter this net cash outlay for capital expenditures, which I think is pretty important to understand our funding requirements.”

In a note, Bank of America wrote that “the new prepayment and bring-your-own hardware model provide an important support to the funding strategy, with these contracts now totaling $75bn, reducing Oracle’s capital needs. RPO conversion is expected to put some pressure on gross margins initially, yet we expect margin pressure to ease with scale and revenue ramp.”

Still, the maneuvering doesn’t seem to be working all that well today, with the stock falling more than 11%. Shares are down some 45% from their peak last September, after Oracle surprisingly reported RPOs of a measly $455 billion.