Oracle Soared on AI; Now a Hold Amid Heavy CapEx and Rising Debt

Oracle: Keep the Position as AI Pushes Forward (Rating Downgrade to Hold)

Oracle has delivered a 90%+ total return since the last Buy call, crushing the S&P 500. The outlook is still strong in AI-driven enterprise solutions, but heavy CapEx, rising debt, and margin pressure move the rating to Hold.

For sales leaders, this means opportunity with guardrails. Demand is high, budgets are opening, but delivery timing and financial discipline matter.

Why this matters for sales

• AI projects are shifting from hype to production. Budgets are moving from experiments to enterprise rollouts tied to revenue, cost reduction, and sales productivity.
• Inference is where value shows up for customers-AI at the point of decision inside ERP, CX, SCM, and finance systems. That's Oracle's sweet spot with data gravity and application depth.
• Backlog is approaching half a trillion, and demand exceeds current capacity. Timing and expectation setting are essential in deals.

AI thesis in simple terms

• AI IT spending is projected to grow fast through 2029, driven by agent-based systems that require more compute and tighter integration with core apps.
• Oracle's two-pronged value: an infrastructure layer to build, train, and run models (OCI), and pre-trained, industry-grade models embedded in its application stack (ERP, HCM, CX).
• Multi-cloud integrations, data lakes, analytics upgrades, and AI agents expanded last quarter. Capacity is scaling with new regions, Nvidia-based superclusters, and stronger interconnects.
• Oracle operates data centers in more regions than peers, supporting sovereign cloud needs-key for public sector and highly regulated industries.
• A major cloud infrastructure deal with OpenAI validates demand and scale. OCI revenue is expected to grow strongly from here.

About Oracle Cloud Infrastructure | OpenAI infrastructure announcement

What's under the hood (segments)

• Cloud & License: ~86.5% of revenue, up 13% YoY, ~59.5% gross margin. This is the engine.
• Hardware: <5% of revenue, flat YoY, ~67% margin.
• Services: ~7% of revenue, up ~6% YoY, ~24% margin. Helps customers adopt and expand usage.

Latest financial pulse (what sales should know)

• Revenue trend is up over five years; the outsized backlog points to continued growth. Seasonality skews to fiscal Q4 (May).
• Gross margin around ~61%, pressured by infrastructure buildout and geography mix. Expect improvement as backlog turns into billings.
• CapEx is heavy and consuming ~70% of operating cash. Debt is up ~18% (largely leases). Current ratio sits at a caution level.
• Dividend is steady, but growth and yield are weak. Some investor payouts have leaned on debt amid high CapEx.
• Momentum is strong post-earnings. For new allocations, buyers will likely wait for better entries after swings.

Oracle vs. Palantir (quick take)

• Growth: Palantir has grown at least 3x faster over 1- and 3-year windows, with higher gross margins.
• Profitability: Net income margins are similar today. Palantir moved from break-even to positive since 2023.
• Scale and fit: Oracle's scale (15x revenue) plus ERP integration gives it an advantage for inference tied to operational systems. Palantir is stronger for AI apps and analytics-led transformations.

Risk watchlist

• Growth capture: Backlog is huge; the task now is converting it on schedule.
• CapEx execution: New regions, superclusters, and interconnects must come online without slippage.
• Restructuring: Costs are being taken to improve efficiency. Margins should benefit if plans land.
• Debt and liquidity: Leverage is elevated. Credit ratings remain stable, but watch maturities and cash generation.

Sales talk tracks you can use now

• Outcomes, not infrastructure: "Put AI at the point of work-quote-to-cash, forecasting, collections, service dispatch-not another pilot on a slide deck."
• Data gravity: "Keep models close to the data inside ERP/CX to reduce latency, improve accuracy, and simplify governance."
• Multi-cloud and sovereignty: "Run where you must. Integrate where you can. Meet data residency without re-architecting."
• Time-to-value: "Industry-trained models and AI agents cut setup time and reduce risk compared with greenfield builds."

Common objections and how to respond

• "Vendor lock-in?" → Multi-cloud pathways and open connectors reduce switching risk. Focus on interoperability and data standards.
• "Latency and compliance?" → Regional coverage and sovereign deployments address both. Bring a region map to the meeting.
• "ROI proof?" → Start with a 90-day POV on one KPI: conversion lift, churn reduction, or DSO improvement. Expand after proof.
• "Capacity constraints?" → Set realistic start dates tied to region buildouts and contract milestones. Escalate early for capacity reservations.

Action plan for sales teams

• Prioritize accounts with large structured data inside Oracle apps: healthcare, financial services, public sector, industrials.
• Bundle offers: ERP module upgrade + AI agents + OCI credits + 90-day POV. Contract with milestone-based acceptance.
• Co-sell with customer finance: Convert CapEx to OpEx, align on delivery windows, lock in capacity where needed.
• Track four signals with buyers and leadership: backlog conversion rate, margin normalization, net leverage trend, restructuring milestones.
• Level up team skills on AI use cases and sales talk tracks. See AI courses by job for targeted upskilling.

Bottom line

Rating moves from Buy to Hold. Keep the position, respect the momentum, and watch execution on capacity, margins, and debt. For go-to-market teams, the opening is clear: sell AI that sits inside decisions, not demos.