Oracle (ORCL) stock is projected to underperform a fund tracking the S&P 500 through 2030, according to a new analysis that cites the company's heavy capital expenditures and negative free cash flow. Oracle shares were trading near $130, a decline of approximately 60% from their record close of $328.33 on September 10, 2025. While the stock is down 33% this year, the S&P 500 index has returned about 13% through September.
The central argument against the stock's near-term performance rests on its cash flow statement. Oracle is spending significantly more on its artificial intelligence build-out than its operations generate in cash. In fiscal year 2026, which ended May 31, capital expenditures reached $55.7 billion, while operating cash flow grew 54% to $32.0 billion. This disparity resulted in free cash flow of negative $23.7 billion for the year.
The pace of spending has accelerated sharply. Quarterly capital expenditures rose from $8.5 billion in the first quarter of fiscal 2026 to $18.6 billion in the third quarter before slipping to $16.5 billion in the fourth quarter. Spending then surged to $28.5 billion in the first quarter of fiscal 2027, which ended August 31, 2026, more than tripling the year-ago total. Management currently guides for total capital expenditures of $90 billion to $95 billion for the full fiscal year.
Even with customer prepayments, the cash gap persists. In the first quarter of fiscal 2027, operating cash flow jumped 184% year over year to $23.1 billion, aided by $11.4 billion in customer prepayments. Despite this increase, free cash flow remained negative at $5.4 billion, marking the sixth consecutive quarter below zero.
Chief Financial Officer Hilary Maxson stated on the September earnings call that the company has not provided a specific timeframe for returning to positive free cash flow. She noted that each data center project is designed to generate strong free cash flow once it reaches full capacity. However, the revenue recognition timeline lags behind the cost of construction. Oracle's remaining performance obligations stood at $664 billion at the end of the first quarter of fiscal 2027, with the company expecting to recognize only about 13% of that amount in the next 12 months. Approximately half of these obligations are not expected to become revenue until after August 2029.
To fund this expansion, Oracle is raising external capital and issuing new shares. The company sold $20 billion in stock under an at-the-market program in the first quarter of fiscal 2027 as part of a plan to raise approximately $40 billion in debt and equity this fiscal year. This financing activity has diluted existing shareholders, with the average number of shares outstanding growing 5% year over year in the quarter. Additionally, interest expense climbed 55% to $1.4 billion, driven largely by $43 billion in bonds sold during fiscal 2026.
Proponents of the stock point to its valuation relative to earnings. Using management's expected non-GAAP earnings per share of $8.10 for the current fiscal year, Oracle trades at approximately 16 times earnings, which is lower than the S&P 500's forward price-to-earnings ratio of nearly 19 as of September 30. Management also forecasts that earnings per share will compound at 28% annually through fiscal 2030.
The analysis concludes that while Oracle's business may be substantially larger by 2030, the stock must first navigate years of high spending, increased debt, and share issuance. Consequently, an S&P 500 index fund is identified as the superior investment choice over that period.