The bull market faces another stress test! Oracle Corporation (ORCL.US) tonight will test the "AI faith" with its financial report.

On Thursday morning Beijing time (after the U.S. stock market closed on Wednesday), software giant Oracle Corporation (ORCL.US) will release its fourth-quarter earnings report for fiscal year 2026. This is a key performance disclosure for the company in the midst of the AI computing power boom and the collective pullback of technology stocks, coinciding with the most severe sell-off in the tech sector in the past 14 months. The technology giant, once known for its database software, is becoming an important example for capital markets to test the investment logic of AI infrastructure. Since the release of third-quarter results, Oracle Corporation's stock price has risen over 42% at one point, but concerns about over-reliance on OpenAI, massive capital expenditures, and the impact of profit-taking in the tech sector have caused the stock to fall nearly 16% in the past week, closing below $210 on Tuesday. Option market pricing indicates an implied unilateral volatility of around 11% in the stock price after the earnings report. The market is actively bargaining three core tests: how much of the AI narrative can still be realized, whether massive investments can support profits, and the direction choice after institutional disagreement; and will use this to judge whether the AI narrative remains intact. Oracle Corporation's earnings report may significantly affect market sentiment. For example, chip giant Broadcom Inc.'s previous earnings guidance failed to meet the market's high expectations, leading to a collective pullback in the AI sector. Since last week, the Philadelphia Semiconductor Index has fallen by over 9%, the Nasdaq 100 Index has retraced nearly 5%, and stocks in the AI industry chain are generally under pressure. Looking at the AI market through Oracle Corporation's earnings report: focus on OCI business and profit tests The market is re-evaluating a core issue: AI demand is still strong, but do businesses have the ability to continue paying for this unprecedented computing power arms race? Over the past 18 months, the AI investment logic has been based on a simple assumption: as long as the demand for computing power continues to grow, cloud computing providers, chip companies, and data center operators will continue to benefit. But as investment in AI infrastructure continues to expand, investors are shifting from "storytelling" to "looking at the balance sheet" Oracle Corporation is a typical case of this transition. As one of the world's top three cloud infrastructure suppliers, Oracle Corporation has rapidly entered the AI training market in recent years through its Oracle Cloud Infrastructure (OCI), becoming an important infrastructure partner for OpenAI, xAI, and many AI startups. The market expects Oracle Corporation's fourth-quarter revenue to reach around $19.1 billion, a year-on-year growth of about 20%; adjusted earnings per share are expected to be $1.96 to $1.97. More attention is focused on the OCI business, with analysts predicting that its revenue growth rate is expected to exceed 90% year-on-year, well above the previous year's growth rate of about 52%. If this number is validated, it would mean that Oracle Corporation is still one of the fastest-growing major cloud service providers globally. AI prospects test: can OCI maintain growth of over 90%, will RPO continue to rise The focus of the market is not on the traditional database business, but on the growth resilience of the cloud infrastructure OCI. The market uniformly expects OCI's business revenue in the fourth quarter to be around $5.17 billion, soaring by about 90.8% year-on-year. Bank of America Securities analyst Tal Liani is more optimistic, forecasting a growth rate of up to 94%, driving total revenue to increase by over 20% year-on-year, further pointing out that the cloud business currently accounts for 52% of total revenue, up from 44% a year ago. The biggest variable comes from supply-side delivery capabilities. Oracle Corporation plans to deploy over 10 gigawatts of computing power in the next three years, with about $25 billion already invested in data center and GPU cluster construction in fiscal year 2026. However, industry-wide shortages in HBM supply and data center delivery delays have become key variables suppressing the recognition of current OCI revenues. Bank of America Securities clearly lists "data center construction and revenue recognition speed" as one of the primary focus points before the earnings report. The most indicative metric is the RPO indicator. As of the end of the third quarter, RPO had reached $553 billion, a staggering 325% increase year-on-year. The market expects RPO to further climb to around $600 billion in the fourth quarter. Mizuho analysts predict that Oracle Corporation may need at least an additional $80 billion in capital expenditure over the next three years to build server capacity, with RPO serving as the strongest signal for the company's future revenue and the heaviest weight on the cash flow in the process of delivering orders, it is exactly a consumption of cash and generating liabilities. The cost of the AI boom: quality of earnings testing, continued pressure on the income statement, expansion of negative free cash flow, CFO's first appearance with triple questions Citigroup Inc. recently raised its price target for Oracle Corporation from $320 to $330 in the earnings forecast, maintaining a "buy" rating, pointing out that there is still strong demand for OCI and orderly trends in bookings, and that even with higher capital expenditures, cost-cutting measures can still support profit margins, expecting earnings per share for fiscal year 2027 to exceed market consensus. The bank further predicts that capital expenditure for fiscal year 2027 may exceed $80 billion, with an expectation that by 2030, Oracle Corporation's IaaS business could reach around $170 billion. However, the flip side of the optimistic outlook is a set of significant financial pressures. Wells Fargo & Company explicitly stated in the earnings forecast that the net profit margin for the third quarter has fallen to around 21.7%, with the gross margin slipping from about 72% in the same period last year to about 67%. Citi admits that higher capital expenditures could put pressure on profit margins beyond expectations, but believes that previous cost-cutting measures can partially offset this. Free cash flow is the major concern. Wall Street expects free cash flow for the fourth quarter to be around negative $3.5 billion. Although this is a significant improvement from the over $10 billion negative free cash flow gap at the end of the third quarter, the full-year free cash flow deficit could still exceed $20 billion. Bank of America Securities attributes this recent surge to the "overall strength of the software sector and relief of funding pressure after the raise of about $50 billion in debt and equity financing", but the market is still waiting for verification: can this $50 billion cross-market fundraising ease long-term funding pressure, or just delay the contradictions. Analysts point out that the most anticipated aspect of this quarter is the first official appearance of the new CFO, Hillary Maxson. They said, "In the past, the management team was able to respond to market doubts with 'order numbers', but the $600 billion RPO now means that delivery is a certainty with rigid costs. The key question has shifted to capital return efficiency. If this call cannot provide a clear investment return cycle and cash flow repair path, the market may reinterpret the 'revenue bridge' as a 'debt trap'." The current market's greatest concern is whether Oracle Corporation can build enough data centers in a timely manner to convert these orders into actual revenue. As AI models continue to grow in scale, customers require not just software services, but supercomputing clusters consisting of thousands of GPUs. This means that Oracle Corporation must invest heavily in building data centers, purchasing servers, and network devices. According to market analysts, Oracle Corporation is currently in one of the most aggressive expansion cycles in its history. Some Wall Street institutions believe that Oracle Corporation's biggest risk is not a lack of demand, but a speed of construction that cannot keep up with demand growth. If data center deliveries are delayed, the revenue recognition period will be extended, while debt costs and depreciation expenses will be reflected in the income statement first. This is also a key reason why the recent market sentiment towards Oracle Corporation's stock price performance has become more cautious. Sector echo: Can Oracle Corporation provide a new anchor for stability in the AI sector? This earnings report goes far beyond Oracle Corporation itself. Data from Goldman Sachs Group, Inc. indicates that the long side of momentum trading strategies has reached historical extremes, while the short side is seriously underweighted; Barclays warns that the single-day decline in the S&P 500 information technology sector hit a recent low, and UBS Group AG saw a single-day decline of over 7% in a basket of stocks benefiting from AI. Bank of America Corp's latest quantitative strategy report is even more serious: the bank tracks 20 valuation indicators, with 17 of them in statistically high valuation ranges, and many indicators even higher than during the internet bubble period. The difference between the top 20% and bottom 20% of performance in the tech sector has reached its highest level since February 2000; about 70% of bear market warning indicators have been triggered recently. Citi strategist David Chew's team pointed out in their latest report this week that after the Nasdaq 100 index plummeted nearly 5% last Friday, marking the largest single-day drop in 14 months, the risks in the U.S. stock market have not completely dissipated. Traders are actively establishing short positions against U.S. stocks, while bullish bets on the tech sector remain high, indicating that the market still faces downward risks. The Citi team further warns that current global equity market bubble levels are nearing peak levels since the 2008 financial crisis, overall risks are steadily rising, and if risk signals continue to increase, the market may face more severe adjustments. Pessimists see warning signs accumulating, optimists see fundamentals still unshaken. On the contrary, several investment banks, including Morgan Stanley, have recently raised their S&P 500 index targets, betting that AI-driven profit growth will continue to support the U.S. stock market's push to historic highs. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR management reiterated at its shareholder meeting in early June that AI demand remains strong and the industry's prosperity continues to expand. From a more macro perspective, Oracle Corporation's situation actually reflects the common challenges faced by the entire AI industry. Major tech giants have significantly increased their capital expenditure budgets for building AI infrastructure. The market generally expects that global AI infrastructure investments in 2026 will surpass $700 billion. At the same time, the financing demand for super-scale data centers could reach $500 billion to $1 trillion annually. The AI industry is transitioning from a software competition to a capital competition. More and more investors are beginning to question: can enterprises investing billions of dollars in training AI models eventually get enough returns? If future enterprise customer growth for AI applications is lower than expected, or if the commercialization speed of models slows down, the growth logic based on high capital expenditures will be challenged. Summary For investors, the three key indicators worth watching in Oracle Corporation's earnings report are: first, whether OCI revenue growth exceeds 90%; second, whether AI order backlogs continue to expand; and third, whether there are signs of improvement in free cash flow and capital expenditures. If OCI continues to maintain growth above expectations, while cash flow pressures ease, the market may reconfirm the logic of investing in AI infrastructure, driving a stable rebound in the AI sector. However, if order fulfillment slows, profit margins continue to decline, or cash flow deteriorates further, the recent tech stock pullback might not just be a technical correction, but could mark the beginning of a "value validation phase" for AI investments. For the entire AI industry, Oracle Corporation's earnings report is answering an increasingly important question: after the frenzy of "computing power equals growth," is the capital market still willing to continue to foot the bill for this expensive AI revolution? Oracle Corporation's situation is a microcosm of the entire AI infrastructure race: high growth, high orders, high capital consumption. As the market transitions from "pursuing growth" to "balancing efficiency," the clarity of OCI growth, capital return rates, and cash flow repair paths will directly impact investors' confidence in this race. J.P. Morgan has explicitly stated in its midterm report that the AI supercycle is far from over, but there is a need to change specific investment allocation strategies. The focus is no longer on "who gets the AI orders," but on "who can excel in capital returns."