Oracle shares slump 44% as OpenAI contract doubts and debt weigh on valuation

Oracle shares have declined 44% from their peak over the past nine months, driven by investor scepticism regarding the financial viability of its $300 billion contract with OpenAI and concerns over its $130 billion debt load. The downturn follows a brief spike in September, after which gains reversed as investors questioned OpenAI’s ability to meet the terms of its contract with Oracle. Despite the pullback, the company’s backlog has grown to $638 billion, suggesting sustained demand for its AI infrastructure, while its price-to-earnings ratio has dropped to 32.

The contraction in valuation comes as the company’s remaining performance obligation surged significantly in fiscal Q1 2026, which ended on 31 August 2025. During that quarter, the backlog increased by 230% in a single period, rising from $138 billion to $455 billion. Most of that gain was attributed to the aforementioned deal with OpenAI, the parent company of ChatGPT. However, the sheer scale of the commitment has led to scrutiny, with many investors questioning whether the artificial intelligence firm is financially positioned to live up to the contract terms.

To fund its artificial intelligence build-out, Oracle incurred nearly $130 billion in debt during fiscal 2026. This borrowing was necessary to support approximately $56 billion in capital expenditures for AI infrastructure, a staggering sum when viewed against the company’s stockholders’ equity of $43 billion. The high leverage has introduced considerable risk, with analysts noting that Oracle could face financial strain if its borrowing does not translate into the anticipated business growth.

Despite the debt concerns, the backlog has continued to expand, reaching $638 billion in the current period. This represents a 62% increase relative to the size of the OpenAI deal in just the past nine months, indicating that demand for Oracle’s cloud services extends beyond a single client. That growth points to a solid AI infrastructure business, which may provide a floor for the company even if the worst fears about OpenAI materialize.

Oracle’s price-to-earnings ratio has fallen to 32, well below its September peak of 76 and slightly under its five-year average of 34. While the valuation appears reasonable given the growth in AI, analysts remain divided on whether this presents a buying opportunity or if further downside is likely. The Motley Fool’s Stock Advisor analyst team has not included Oracle in its current list of 10 best stocks to buy, despite the firm holding a position in the stock and recommending it.