- Oracle's free cash flow cratered in its fiscal Q2 2026 and capex soared
- The company's backlog also jumped to well over half a trillion dollars, but it expects to reap some short-term revenue from that pipeline
- Investors were spooked but analysts said Oracle isn't spending speculatively
Oracle raised eyebrows this week when it revealed during its fiscal Q2 earnings report that while overall revenue rose 14% and cloud infrastructure revenue jumped 66%, its free cash flow took a nose dive deep into the red.
Trailing 12-month free cash flow came in at negative $13.18 billion, compared to positive $11.27 billion in the year-ago quarter. Capital expenditures in the quarter came in at $12 billion, and trailing 12-month capex climbed to $35.48 billion. The year prior it was $7.86 billion.
Together these two metrics sent investors’ alarm bells ringing. And considering the company’s order backlog jumped a whopping $68 billion sequentially to a total of $523.3 billion, it almost seems like Oracle is drowning in a wave of AI demand. Almost.
In case the size of that backlog isn’t hitting home: Amazon, Microsoft and Google had a combined order backlog of $747 billion as of the end of calendar Q3. Oracle’s alone is now 70% of that.
CFO Doug Kehring said during the company’s earnings call that the quarter-over-quarter leap in backlog was “driven by contracts signed with Meta, Nvidia, and others as we continue to diversify our customer backlog.”
He added that “the vast majority of these bookings relate to opportunities where we have near-term capacity available, which means we can convert the added backlog to revenue sooner. The result is we now expect $4 billion of additional revenue in FY27.” Its current fiscal year revenue guidance remains unchanged.
Though it’s hard not to feel like that kind of backlog number is a bit inflated, HyperFRAME Research analysts Ron Westfall and Steven Dickens both argued on LinkedIn that Oracle remains on solid ground.
“Net net: This company is VERY different from the likes of CoreWeave and the neocloud providers and should be valued accordingly,” Dickens wrote. “Oracle has some long term franchises that are VERY profitable. Database, ERP, Finance, and Healthcare - these businesses give Oracle a stable predictable ARR, from which the company can build a fast-growing cloud and AI business.”
Westfall added that Oracle’s capital spending isn’t speculative but rather being built both to existing demand as well as for its core OCI offerings.
“Overall, I anticipate that the fulfillment of the $523B RPO backlog alone provides a solid fiscal future by guaranteeing years of accelerated, high-visibility revenue growth for its key OCI segment and an overall solid fiscal future,” Westfall said.