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Oracle stock (NYSE: ORCL) took a sharp hit today, dropping 5% intraday on Tuesday.

Investors are clearly torn; some are excited about the company’s AI-driven growth potential, while others are worried about debt, shrinking margins, and execution risks.

The sell-off came after it was revealed that Oracle lost $100 million last quarter renting Nvidia’s top-tier AI chips, a reminder that even with lucrative AI deals, the financial strain is real.

Oracle stock: AI contracts fuel hopes, but financing raises alarms

Oracle’s big growth story really comes down to its huge AI and cloud deals, most notably a $300 billion, five-year compute contract with OpenAI kicking off in 2027.

This is part of the massive $500 billion Stargate AI project, which includes building 4.5 gigawatts of new data center capacity. Basically, Oracle is setting itself up as a key player in the AI cloud space.

The top leadership has been pointing to some jaw-dropping numbers: remaining performance obligations are up 359% year-over-year to $455 billion, and she’s forecasting 77% growth in Oracle Cloud Infrastructure revenue this year.

Some analysts are staying positive, saying short-term financing worries are just temporary and that Oracle has plenty of ways to fund growth through debt, vendor deals, and partnerships.

That said, there are some real clouds on the horizon. Oracle’s debt is rising, and margins are under pressure.

Moody’s warns that free cash flow could stay negative for a while because of heavy spending on data centers, and that the company’s high leverage might squeeze earnings until it’s reduced.

Analysts at Jefferies and Evercore point out that while AI cloud revenue is booming, it doesn’t make as much profit as Oracle’s traditional software business.

That could push operating margins down from 44% in FY2025 to around 38% by 2030.

What investors should watch next

Investors are keeping a close eye on Oracle’s next quarterly earnings and guidance, looking for signs that those massive contracts are actually paying off and that cash flow is improving.

The big things to watch? Quarterly revenue growth, especially in cloud services, spending on new data centers, and net debt to EBITDA ratios to see how leverage is trending.

Free cash flow will be particularly important; if it stays in the red for too long, refinancing could get tricky.

On top of that, whether Oracle hits its milestones with the OpenAI deal and sees strong enterprise demand for AI infrastructure will play a big role in shaping investor sentiment and potentially boosting the stock’s valuation.

That said, while Oracle is going all-in on building new data centers, the cost of these investments during uncertain economic times is a real risk.

Analysts are also comparing Oracle to peers like Microsoft and Nvidia, and they note that its price-to-earnings multiple already reflects a lot of the AI growth hype.

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