Downfall of a Wall Street darling: Why Oracle shares crashed 65% from peak

Oracle shares have fallen about 65% from their record high, marking one of the sharpest reversals among stocks linked to the artificial intelligence boom. The stock had rallied strongly on hopes that Oracle would become a major winner in AI cloud infrastructure. Investors were betting that demand for AI computing, data centres and cloud capacity would lift the company’s growth for several years.

That optimism has now weakened. Investors are no longer focused only on Oracle’s cloud demand. They are also looking closely at how much the company needs to spend, how much debt it may raise and how quickly its large order book can turn into profitable revenue.

Cloud demand remains strong


The fall has come despite strong operating numbers from Oracle. The company reported record Q4 and FY26 results, helped by growth in cloud infrastructure and cloud applications. Oracle said its Oracle Cloud Infrastructure revenue rose 93% in the quarter. Its remaining performance obligations, which refer to contracted future revenue, increased to $638 billion.

That backlog shows strong demand for Oracle’s cloud services, especially from companies building AI models and applications. It is also the main reason investors had treated Oracle as a serious AI infrastructure play.

Capex worries hit sentiment

The concern is the cost of meeting that demand. Reuters reported that Oracle spent about $55.66 billion in capital expenditure in FY26, higher than its earlier target of $50 billion, as it expanded AI infrastructure. The company also said it would raise more debt in 2027.

That has raised worries about cash burn and leverage. Building AI data-centre capacity requires huge upfront investment in chips, power, land, servers and networking equipment. Revenue may come later, but spending has to happen first.

This is why the stock has been under pressure even though cloud revenue is growing fast. Wall Street is asking whether Oracle can earn enough returns from its AI infrastructure spending to justify the debt and capital expenditure.

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AI changed Oracle’s market story

Oracle built its name in database software. For decades, it was seen as a steady enterprise technology company with strong cash flows from software and database clients.

The AI boom changed that image. Oracle pushed deeper into cloud infrastructure and began competing more directly with Amazon Web Services, Microsoft Azure and Google Cloud.

The company positioned itself as a provider of high-performance cloud capacity for AI training and inference. Large AI contracts made it one of the most-watched stocks in the data-centre buildout trade.

That helped push Oracle shares to a record high. It also lifted the wealth of co-founder Larry Ellison, who briefly moved close to the top of global rich lists during the rally.

Debt and customer concentration become concerns

The same AI story is now working against the stock.

Investors are worried that Oracle’s cloud opportunity is becoming too capital-intensive. Unlike Microsoft, Alphabet and Amazon, Oracle does not have the same scale of diversified cash flows to fund AI spending. That makes debt and free cash flow more important for the stock.

There are also questions over customer concentration. Investor’s Business Daily reported that a large OpenAI cloud infrastructure contract is a key part of Oracle’s AI bet, and cited concerns that OpenAI may account for a large share of Oracle’s $638 billion remaining performance obligations.

A large backlog is usually positive. But investors prefer that backlog to be spread across many customers. If too much future revenue depends on a few AI companies, the market will demand more proof that the contracts can be executed and paid for over time.

Credit markets are watching

Credit investors are also paying attention. Business Insider reported that Oracle’s credit rating was cut from BBB, with the ratings agency citing heavy infrastructure spending and exposure to OpenAI as risks to the company’s debt profile.

That adds another layer of pressure on the stock. Equity investors can accept high spending when growth is strong and the balance sheet looks comfortable. They become more cautious when the same growth needs more borrowing.

Broader reset in AI stocks

Oracle’s fall also reflects a wider reset in the AI trade. For much of the past year, investors rewarded almost any company linked to AI infrastructure.

That has started to change. The market is now separating AI demand from AI returns. Investors want to know whether companies spending heavily on chips, power, cloud capacity and data centres can generate enough profit from that spending.

Oracle still has a strong business case. Its cloud infrastructure revenue is rising sharply. Its backlog is large. Management has given ambitious growth targets and said AI demand is driving future contracted revenue.

But the market is now looking for execution. The next few quarters will be judged on capex, debt, free cash flow, OCI growth and how quickly the backlog turns into actual revenue.

Oracle’s 65% fall shows how fast investor sentiment can change in the AI trade. The company has demand and large customers. The challenge is proving that it can build the AI infrastructure business without putting too much pressure on its balance sheet.

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