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The S&P 500 is full of companies racing to use artificial intelligence (AI), developing strategies that need vast computing power. Oracle (NYSE:ORCL) is well-positioned to help build the very infrastructure required to supply it.
That sounds like an attractive investment story. But a growing market isn’t the same thing as a profitable investment at any price.
As a UK investor, I can see why Oracle deserves attention. Its recent results show that customers aren’t merely talking about AI, they’re signing contracts. Still, the cost and complexity of delivering that capacity make me hesitant.
First though, it’s worth looking at what the bulls can point to.
The growth is real
Oracle’s latest results, for the fiscal first quarter ended August 2026, show how quickly its cloud business is expanding:
- Revenue rose 30% year on year to $19.3bn.
- Cloud revenue rose 62% to $11.6bn.
- Cloud infrastructure revenue jumped 121% to $7.4bn.
- Remaining performance obligations reached $664bn, up $209bn from a year earlier.
That last figure represents contracted work still to be delivered, not cash already in the bank. Even so, it’s a striking measure of demand. Oracle says it signed more than $30bn of additional AI cloud contracts during the quarter.
It also expects at least $90bn of revenue for the full fiscal year.
I don’t think those numbers can be brushed aside. If the company builds capacity on schedule and earns healthy returns from it, today’s heavy investment could support a much larger business.
But there’s another figure I can’t ignore: quarterly free cash flow was a negative $5bn. Growth is impressive. Funding it is the harder test.
A warning from New Mexico
On 24 September, Reuters reported that Oracle had issued a force majeure notice to a Blue Owl unit developing a large New Mexico data centre. The notice cited potential delays in securing power for the site.
In plain English, even a company with willing customers can’t sell computing capacity from a facility that isn’t ready.
That isn’t evidence it cancelled the project – apparently, it remains planned on schedule. Blue Owl has said the notice didn’t change the project’s financial commitments and brokerage William Blair expects little near-term effect since the site isn’t due to contribute revenue in fiscal 2027.
Still, the episode highlights a risk that big contract totals can obscure. Data centres need electricity, equipment, construction work and financing. If any piece arrives late, revenue may arrive late too, while costs keep mounting.
How much of that risk is reflected in the share price?
Why I’m staying on the sidelines
I’m not arguing that AI demand is a mirage, or that Oracle can’t turn its backlog into sales. But there’s a bigger question in AI: can future returns justify the spending needed to get there?
For UK investors, it’s also important to consider the dollar’s movement against the pound, particularly when comparing S&P 500 investments to those closer to home.
For now, I’d rather miss the first leg of any further rally than buy before I’m comfortable with the likely return on all this spending.
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Mark Hartley does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
