Bondholders sue Oracle over AI losses. Is it wise to keep buying ORCL?

Last week saw Oracle (ORCL) stock take a hit, dropping nearly 5% due to a lawsuit brought forth by bondholders concerning losses stemming from the company’s investments in artificial intelligence (AI). The lawsuit, filed in a New York state court, is seeking class-action status and represents investors who purchased around $18 billion of Oracle’s debt in September.

This legal issue has sparked concerns among investors about Oracle’s financial health, particularly at a time when the company is ramping up spending on AI cloud data centers. While Oracle has emerged as a key player in the infrastructure side of the AI industry, driving optimism about its long-term growth prospects, this position has also resulted in significant expenses for the company’s debt holders.

Adding to the conversation, BNP Paribas recently suggested that Oracle may need an additional $25 billion to $30 billion in funding to support its AI initiatives. This figure is notably lower than previous estimates that had pegged the required funding at around $100 billion. Despite these challenges, KeyBanc Capital Markets has labeled Oracle’s shares as undervalued.

Oracle is a global provider of enterprise software and cloud infrastructure solutions, headquartered in Austin, Texas, and is well-known for its database software offerings. In recent years, Oracle has made strides in developing cloud infrastructure, cloud applications, and AI-driven solutions. The company currently boasts a market capitalization of approximately $549 billion.

Over the past year, ORCL stock has experienced significant volatility, ranging from a low of about $118 to a high of roughly $346. Presently, the stock has dipped by 4% over the last five trading days, with heavy selling activity indicated by its Relative Strength Index hovering around 40. In contrast, the S&P 500 index has remained relatively stable over the same period, pointing to company-specific challenges related to leverage for Oracle.

In terms of valuation, Oracle is currently trading at a trailing price-to-earnings (P/E) ratio of 33.4 times and a forward P/E of 31.8 times. Its price-to-sales (P/S) ratio sits at approximately 9.5 times, which is high compared to traditional software companies, suggesting confidence in sustained revenue growth from cloud/AI technologies. The company’s debt/equity ratio exceeds 3, while its interest coverage ratio is just below 5.

Despite the legal and financial concerns, Oracle’s recent earnings release offers a different narrative. For the fiscal second quarter of 2026, Oracle reported a remarkable 91% increase in GAAP EPS to $2.10 and a 54% rise in non-GAAP EPS to $2.26. Revenue climbed 14% year-over-year to $16.1 billion, with cloud revenue seeing a 34% growth to $8 billion and cloud infrastructure revenue surging 68% to $4.1 billion.

An intriguing highlight was the significant 438% year-over-year growth in Remaining Performance Obligations (RPO) to $523 billion, driven by new long-term contracts with major clients, such as Meta Platforms (META) and Nvidia (NVDA), showing Oracle’s involvement in large-scale AI projects. Management highlighted strategic flexibility and collaboration with third-party CPU and GPU suppliers, signaling a shift away from vertical integration.

Looking ahead, analysts on Wall Street maintain an overall positive outlook on Oracle, despite the recent stock volatility. With a “Moderate Buy” consensus rating from 41 analysts, the median target price for ORCL stock is $304.03, suggesting a potential gain of 59% from current levels. The high target of $400 points to a 109% upside, underscoring confidence in Oracle’s AI-driven cloud business, while the low target of $175 signals an 8% downside potential.