Accused of being "the spokesperson for the AI bubble," can Ellison respond to Wall Street with Oracle (ORCL.US) financial results this week?

According to Zhitong Finance APP, Oracle (ORCL.US) is set to release its Q1 FY2027 financial report this week, marking the end of arguably the most turbulent 12-month period in the company’s 49-year history.

A year ago, Oracle’s Q1 report triggered a record single-day rally of 36% in its share price. The Austin, Texas-based tech giant told investors at the time that its remaining performance obligations (RPO) soared by 359% to a staggering $455 billion. This surge in backlog was driven mainly by a $300 billion agreement with ChatGPT developer OpenAI—a partnership then seen as a milestone endorsement of Oracle’s transformation from a traditional database software company to a cloud powerhouse.

However, the situation has changed dramatically. Since last year’s surge, Oracle and its chairman Larry Ellison have found themselves at the center of the debate over AI spending. A recent profile in The New York Times Magazine explored whether Ellison, one of the world’s richest people, might become “the poster child of the AI bubble.”

Market anxiety over the huge capital outlays needed for Oracle’s AI vision has driven its share price down more than 50% from its all-time high in September last year. Most of the rebound attempts over the past 12 months have failed. Oracle’s relative strength line (measuring its performance against the S&P 500) is now just 12 (out of 99), indicating notable weakness.

This makes the upcoming earnings report another major test of market confidence in AI infrastructure construction. Recent earnings reports from Nvidia (NVDA.US) and cloud giants Amazon (AMZN.US), Microsoft (MSFT.US), and Google parent company Alphabet (GOOGL.US) have all indicated ongoing robust demand for compute infrastructure.

Paul Meeks, Managing Director and Head of Technology Research at Freedom Capital Markets, described Oracle’s AI push as an “extreme case of a good thing turned bad.”

“The good news is this sleeping giant has been woken up, with revenue accelerating markedly; the bad news is, to support its ambitions, free cash flow has been negative for five quarters straight,” Meeks stated.

High Revenue Growth Backed by Massive Cash Burn

From the revenue side, Oracle’s AI bets have indeed delivered immediate results. Total revenue grew 17% in FY2026, compared to a compound annual growth rate of just 5.4% from FY2019 to FY2025. The company even provided FY2027 sales guidance of $90 billion, implying more than 30% growth.

The core driver was Oracle Cloud Infrastructure (OCI), which aims to compete with the cloud titans Amazon, Microsoft, and Google. In FY2026, OCI generated $18 billion in revenue, up 77% year-on-year. Cloud demand further pushed Oracle’s RPO (contracted but not yet recognized revenue) to $638 billion as of May.

But the flip side is a dramatic cost increase. To meet the needs of clients like OpenAI, Oracle is building a total of 4.5 gigawatts of data center capacity. In FY2026, Oracle’s operating cash flow rose 54% to $32 billion, but capital expenditures more than doubled in the same period to $55.6 billion, leading to a negative free cash flow of $23.7 billion. Just two years prior, Oracle’s free cash flow was a positive $11.8 billion with only $6.9 billion in capital expenditures.

To close the funding gap, Oracle announced in February that it planned to raise $50 billion through a combination of bond and equity financing. CFO Hilary Maxson said in June that FY2027 capex would reach $90–95 billion, with up to $25 billion covered by cloud customer prepayments.

Oracle is also sharing part of the cost by allowing customers to purchase advanced compute chips themselves. However, FactSet data shows analysts expect Oracle’s free cash flow (12-month rolling) to remain negative through at least FY2030.

The huge capital expenditures and continual cash burn have already started to erode Oracle’s credit fundamentals. In July this year, S&P Global Ratings downgraded Oracle’s credit rating from BBB to BBB-, just one notch above junk status.

S&P’s rating report stated bluntly: “Oracle’s rapidly expanding AI infrastructure business is increasing its overall credit risk, reflecting our more cautious view of the AI infrastructure sector, including rising capex requirements, uncertain profitability paths, a rapidly evolving competitive landscape, and high customer concentration.” The report specifically noted that OpenAI accounts for “about half” of Oracle’s RPO, making Oracle’s share price highly sensitive to OpenAI’s developments.

Last September, Oracle underwent a rare leadership change that further exacerbated the company’s upheaval. Clay Magouyrk and Mike Sicilia were appointed co-CEOs, while long-time CEO Safra Catz became executive vice chairman. In April, Oracle also named a new CFO.

Ellison’s core leadership team is committed to continuing heavy investment in Oracle’s AI vision, but whether management can balance growth with financial discipline remains a key focus for investors.

Meeks pointed out that Oracle has historically attracted “value investors” seeking stable cash flows and annual dividends. “They want a tortoise, not a hare. But now this company wants to be a hare.” This shift in investor base, combined with deteriorating fundamentals, explains the sharp retracement in the share price.

Earnings Outlook: Analysts Still Generally Bullish, but Divisions Deepen

When Oracle reports Q1 earnings, it will have another opportunity to present its vision to investors. The company also plans to hold its annual “AI World” customer conference in Las Vegas at the end of October.

According to aggregated data, analysts currently expect Oracle to report adjusted EPS of $1.73 for the first quarter, with revenue forecast at $19.1 billion, up 28% year over year—far above last year’s 11% growth rate for the same period.

However, the gap between revenue growth and profit growth warrants attention. The market expects adjusted earnings per share to increase about 18.5% this quarter, significantly lower than the 28% revenue growth rate. This suggests Oracle is sacrificing short-term margins for rapid cloud infrastructure expansion.

This contrast is even more prominent when compared to hardware providers. For example, Micron Technology (MU.US) is expected to see revenue grow 246% in FY2026, while EPS is forecast to jump more than 840%—Micron benefits from strong AI storage chip demand and pricing power, whereas Oracle is “paying the bill for the feast.”

Nevertheless, Wall Street remains broadly optimistic. Data shows that 80% of analysts have a “buy” or equivalent rating on Oracle, up from 67% a year ago. Of 45 analysts, 42 rate it “buy,” 8 “hold,” and only 1 “sell.”

Jefferies analyst Brent Thill reiterated his “buy” rating but lowered his price target from $320 to $290. He believes Q1 is Oracle’s “seasonal weak quarter,” but “the stock is overly punished and the risk/reward looks attractive.” Investors will focus on OCI growth, which is expected to accelerate to 115%, and the latest data center build updates.

Morgan Stanley slightly raised its Oracle price target from $207 to $210, maintaining an “equal-weight” (neutral) rating. Analyst Sanjit Singh believes Oracle’s transition to a cloud infrastructure leasing business still has “a long way to go,” but with the share price down 25% since the last earnings in June, “given the in-quarter share price performance and current valuation, there’s a tactical constructive setup ahead of earnings.”

BofA Securities analyst Tal Liani was even more optimistic, reiterating his “buy” rating and $240 price target. In a client note, he wrote: “Although Oracle’s stock narrative is mainly focused on its cloud infrastructure business, we believe the traditional software segment remains an integral part of the investment case. We expect Q1 cloud SaaS revenue to grow 12.8%, up from 10.3% in Q4, thanks to ongoing cloud migration and embedded AI capabilities boosting client productivity.”

Options Market: Volatility Pricing and “Strangle Swap” Strategies

In the options market, trading activity is reflecting high investor uncertainty around this earnings release. According to options analyst Michael Khouw’s observations last Wednesday, options pricing implies Oracle shares could move more than 10% by the end of this week, in line with the two-year average. Based on last Wednesday’s closing price of $145, this means post-earnings the share price might break above $160 or fall below $130.

To navigate this high-volatility environment, Khouw suggested a so-called “strangle swap” options strategy: sell the September 25 expiry $125/$167.5 strangle (simultaneously selling a $125 put and a $167.5 call), while buying the January expiry $115/$195 wide strangle for a net debit of about $8.30. Based on current pricing, the probability of profit for this position exceeds 70%, with expiration breakeven points of around $118 and $180—gains or losses of about 17%-18%, respectively.

The core logic is: sell expensive short-term volatility, betting that bulls and bears may continue the tug-of-war over the coming months after earnings, while retaining long-term options in case an outsized move actually materializes.

“If the earnings result is simply ‘decent’ or ‘slightly disappointing’ rather than a major turning point, then the sharp time-value decay (i.e., ‘volatility collapse’) of the September expiring options will work in our favor. And if Oracle (or OpenAI) delivers a major positive or negative shock, the January-dated options provide a buffer that short options alone lack—a longer runway,” Khouw explained.