Oracle's (ORCL Quick QuoteORCL - Free Report) aggressive AI infrastructure buildout has put its free cash flow (FCF) outlook under scrutiny. In first-quarter fiscal 2027, capital expenditures jumped to $28.5 billion from $8.5 billion a year ago, pushing FCF to negative $5.4 billion despite record operating cash flow of $23 billion, up 184% year over year. Net of customer prepayments, cash capex was about $18 billion.

Guidance indicates the pressure will persist. Oracle reiterated fiscal 2027 capex of $90-$95 billion, with net cash capex capped at $70 billion, and has not set a timeline for FCF to turn positive after a negative $23.7 billion in fiscal 2026. The company plans to raise about $40 billion in debt and equity this year, including a $20 billion at-the-market stock sale completed in the first quarter, which dilutes shareholders. Gross margin is also expected to decline in fiscal 2027 as new sites ramp.

Still, the demand backdrop supports the spending. Remaining performance obligations rose $209 billion year over year to $664 billion, aided by more than $30 billion in new AI cloud contracts that Oracle said require no incremental capital raising and largely affect capex only from fiscal 2028. The company delivered 850 megawatts of capacity and more than 300,000 GPUs, while cloud infrastructure revenues surged 121% to $7.4 billion. Management expects projects to generate strong FCF soon after ramping, with conversion potentially near 100% of post-tax EBITDA.

For second-quarter fiscal 2027, Oracle expects total revenue growth of 30-34% and cloud revenue growth of 65-71% in USD, with non-GAAP EPS of $1.85-$1.93. Full-year revenues are now projected at a minimum of $90 billion, with non-GAAP EPS raised to $8.10 from $8.05. While the revenue trajectory is encouraging, FCF is likely to remain negative in the near term, making capex discipline and the upcoming Oct. 28 Investor Day key to watch.

How ORCL’s Capex Strategy Compares With Microsoft & Amazon

Oracle’s cash-flow strain mirrors a broader AI spending wave among U.S. hyperscalers. Microsoft (MSFT Quick QuoteMSFT - Free Report) spent $41 billion on capex, including finance leases, in fourth-quarter fiscal 2026, up 69% year over year, yet Microsoft still generated $19.6 billion in FCF, though down 23%. Microsoft expects FCF to stay positive in fiscal 2027. Amazon (AMZN Quick QuoteAMZN - Free Report) raised its 2026 capex outlook to $220 billion from $200 billion after second-quarter capex climbed to $54.2 billion from $32.1 billion. Consequently, Amazon’s trailing 12-month FCF swung to an outflow of $7.6 billion from an inflow of $18.2 billion, leaving Amazon’s cash profile closer to Oracle’s current position.

ORCL’s Price Performance, Valuation & Estimates

ORCL shares have plunged 26.5% year to date, underperforming the Zacks Computer and Technology sector’s growth of 22.6% and the Zacks Computer - Software industry’s decline of 2.1%.

ORCL’s YTD Price Performance

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ORCL’s valuation remains relatively attractive, with the stock trading at a trailing 12-month P/E ratio of 21.06X, lower than the sector average of 1.02X. Oracle has a Value Score of C.

ORCL’s Valuation Chart

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The Zacks Consensus Estimate for ORCL’s fiscal 2027 earnings is currently pegged at $8.13 per share. The estimate implies 6.55% year-over-year earnings growth.

ORCL currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.