"AI Bull" on the Brink! Early Thursday Morning, Oracle's Earnings Report Becomes the Next Critical Stress Test

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The rally in AI-related stocks has suddenly faltered. The fourth quarter fiscal 2026 earnings report from Oracle, to be released after the U.S. market closes on Wednesday (early Thursday morning Beijing time), will be a key test to determine whether this pressured sector can stabilize.

A week ago, Broadcom’s weak performance guidance ended the strong upward trend of chip stocks and AI concept stocks. Since then, the Philadelphia Semiconductor Index has fallen by 9.1%, and the Nasdaq 100 Index has retreated by nearly 5%. Whether Oracle’s cloud business revenue can maintain rapid growth will directly determine market confidence in AI investments.

Oracle’s share price had risen as much as 27% year-to-date, but then, along with other high-beta AI stocks like Dell Technologies and Super Micro Computer, experienced a pullback, with the year-to-date gains narrowing to 5%. The three core focuses of this earnings report are: whether cloud business revenue can meet high growth expectations, whether the situation of continuous negative free cash flow continues, and whether the balance sheet is sufficient to support the capital expenditure needed for infrastructure construction.

Cloud Business Growth is the Core Focus

Starting with database software, Oracle has in recent years boosted its revenue growth significantly through cloud services transformation and surging AI computing power demand. Its cloud infrastructure division (OCI) is the main focus of this earnings report.

According to the average analyst forecast compiled by Bloomberg, for the fourth quarter of fiscal 2026 ending in May this year, OCI revenue is expected to increase 92% year-on-year, far higher than the 52% growth in the same period last year.

Bloomberg Industry Research analyst Anurag Rana said, Oracle’s overall fundamentals are strong; the core issue is whether data center expansion can keep up with demand. "The key is whether they have built enough data centers to accommodate this demand."

Gabelli Funds portfolio manager John Belton raised concerns about the quality of revenue. He noted that OCI performed solidly last quarter and is expected to continue accelerating this quarter, but the question then is: Does the accelerated revenue growth mean the company is structurally shifting from high-margin, high-sticky database software business to lower-margin, more homogeneous infrastructure services that carry customer concentration risks?

Transformation Costs: Shrinking Profits and Cash Flow Dilemma

Besides revenue growth, earnings quality is also under scrutiny. Analysts expect Oracle’s adjusted earnings per share this quarter to be $1.97, up about 16% year-on-year; gross margin is about 67%, significantly down from about 72% a year ago.

As for free cash flow, the market expects a negative $3.5 billion for the fourth quarter, worse than the negative $2.9 billion from a year ago. However, compared to the combined more than negative $20 billion in the previous two quarters, this quarter has improved significantly.

The costs of cloud services transformation are clear—continuously rising capital expenditures have led to Oracle’s free cash flow being negative for the long term, and there are concerns about whether it can continue to fund infrastructure expansion.

Rising Customer Concentration Risk, Earnings Report Becomes Key Verification Window

Cyrus Amini, Chief Investment Officer of Hyphen Wealth Management, bluntly stated that weaknesses in the balance sheet are pushing Oracle into a corner with no way out. He said:

"The core issue facing Oracle is: can it fulfill its ongoing obligations and turn potential revenue into real revenue? Does the balance sheet leave enough time and space to support this process? If it cannot give a satisfactory answer, it would be easy for the market to punish this stock heavily."

He further pointed out that if free cash flow is positive, the market might be tolerant; but when the balance sheet leaves no room for maneuver, it will be difficult for Oracle to rebound as quickly as other hyperscale cloud providers after a decline.

At the same time, Oracle is already troubled by excessive OpenAI exposure. As Anthropic and Google seize market share in AI services, concerns over its customer concentration risk are rising. This earnings report will be an important window for Oracle to prove the sustainability of its growth trajectory to investors.

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