Oracle shares rose as investors reassess AI-driven sell-off

Oracle Corp. ORCL shares gained 1.3% on Monday as investors returned to the stock following a sharp, debt-driven sell-off, amid improving broader market sentiment.

The recovery also came as broader market sentiment improved, with the Nasdaq Composite gaining 0.95% and the S&P 500 advancing 0.44%.

The move marked a shift in investor sentiment after weeks of selling pressure driven by concerns over Oracle's aggressive investments in artificial intelligence (AI) infrastructure.

While questions remain over the company's capital spending plans and debt levels, some investors now appear to believe the earlier decline had become excessive.

Backlog supports long-term growth outlook

Oracle has faced significant selling pressure in recent weeks.

The stock has declined 28.03% so far this year as investors have questioned the sustainability of its debt-funded AI expansion.

Investor concerns centred on the company's negative free cash flow and its plans to raise as much as US$40 billion (approx. $51.6 billion) in financing to support continued investment in AI infrastructure.

Despite these concerns, Oracle's remaining performance obligation (RPO) backlog of US$638 billion (approx. $823.1 billion) continues to provide long-term revenue visibility.

The sizeable backlog has reinforced confidence among some investors that the company's heavy AI investments could translate into future growth.

The strength of the backlog has become one of the key factors supporting the stock's recovery after the recent correction.

AI investment triggered a historic sell-off

Oracle's rebound follows one of the sharpest monthly declines in the company's history.

The stock fell about 35% in June after gaining nearly 40% in May.

The June decline marked Oracle's worst monthly performance since September 1990.

The sell-off followed reports that Oracle spent US$16.5 billion (approx. $21.3 billion) on capital expenditures during its latest quarter as it expanded its AI infrastructure.

The spending pushed the company's full-year free cash flow to negative US$23.7 billion (approx. $30.6 billion), intensifying investor concerns about the pace and scale of its investment strategy.

Market expectations suggest that Oracle's capital expenditure could rise to approximately US$92 billion (approx. $118.7 billion) in the next fiscal year.

At the end of May, the company's debt stood at around US$130 billion (approx. $167.7 billion).

These figures prompted investors to question whether Oracle's expansion plans would place additional pressure on its balance sheet in the near term.

Analysts remain constructive despite debt concerns

Although concerns over debt and capital spending weighed heavily on the stock, several analysts maintained bullish ratings on Oracle during June.

They also raised their price targets, citing continued strength in cloud computing and AI demand.

The positive analyst outlook has provided additional support for investors who believe the recent decline may have been overdone.

Historical trading patterns also suggest that Oracle has often recovered after experiencing steep monthly declines.

Since 1986, Oracle has recorded monthly declines of 30% or more only eight times.

Following the previous seven instances, the stock typically rebounded, delivering a median gain of 16% over the following three months and 93% over the subsequent year.

The stock finished higher roughly two-thirds of the time after those previous declines.

Monday's gain suggests that investors are once again focusing on Oracle's long-term growth prospects, even as questions surrounding debt levels, free cash flow, and future capital expenditure continue to remain in focus.