Oracle’s AI cloud buildout drains cash and lifts leverage, turning its pivot into a high-stakes bet

Oracle is spending at “data-center scale” to compete in cloud and AI infrastructure, and the financial trade-offs are now more visible. In a filing covering the quarter ended Feb. 28, 2026, the company reported sharply higher capital expenditures and a free-cash-flow swing that underscores how its business model is becoming less asset-light as it builds out capacity for AI workloads.

Oracle’s trailing-four-quarter free cash flow fell to negative $24.736 billion, after the company posted positive free cash flow of $5.812 billion a year earlier. The deterioration tracked a jump in capital expenditures to $48.250 billion, up 223% from $14.933 billion in the prior-year period, according to the company’s non-GAAP free-cash-flow bridge in the same 10-Q.

Cash on Oracle’s balance sheet rose to $38.455 billion at Feb. 28, 2026, up from $10.786 billion at May 31, 2025. The increase was accompanied by a financing push that included issuing new senior notes in the first nine months of fiscal 2026 and raising $5.0 billion, net of issuance costs, from a mandatory convertible preferred stock offering in February 2026. Oracle also booked cash proceeds tied to the sale of its stake in chipmaker Ampere.

Debt and lease obligations rose as the buildout accelerated. In the 10-Q, Oracle reported notes payable and other borrowings of $9.887 billion due in the next 12 months and $124.718 billion due beyond that period, for total notes payable of roughly $134.6 billion. Operating lease liabilities related to infrastructure also increased to $18.512 billion.

Oracle’s defense is that demand is already committed. The company reported remaining performance obligations, or RPO, of $552.6 billion as of Feb. 28, 2026, and it expects to recognize about 12% of that as revenue over the next 12 months, according to the same filing. RPO is a forward-looking backlog metric that represents customer contract commitments not yet recognized as revenue, making it a key number for cloud and infrastructure businesses as they scale.

Even with a large RPO backlog, the pivot carries structural risk. As Oracle expands capacity, it locks in fixed costs that can be harder to reduce quickly if AI-related demand slows or if customer spending shifts to different architectures and vendors. Oracle’s filing also makes clear that it expects its upward trend in capital expenditures to continue through the remainder of fiscal 2026 and into the next few fiscal years as it increases data-center capacity and adds locations to meet current and expected customer demand.

Oracle’s capital plan may also raise longer-term equity and earnings pressure. In February 2026, the company entered an at-the-market equity program with up to $20 billion in potential common stock sales, and it has also described ways that liquidity needs, capital expenditures, and debt repayment can be supported through borrowing arrangements and future equity sales. Those tools can help avoid a near-term funding crunch, but they can also involve dilution and higher interest expense, depending on how and when they are used.