Oracle has just done something unexpected – it silently broke through the trillion-dollar market capitalization barrier, followed by a slight retreat. According to existing information, the current market capitalization is $877 billion. Although it has long been viewed as a traditional database company, it is repositioning itself and continuously developing into the cloud infrastructure sector. Considering its $455 billion backlog of orders, its collaboration with OpenAI, and the growth of Oracle Cloud Infrastructure (OCI), Wall Street is filled with anticipation for it.

Oracle is heavily investing to expand its cloud capacity. The management has a capital expenditure budget of up to $35 billion for fiscal year 2026, a figure that far exceeds the annual R&D budgets of many companies. The company is betting on becoming a core infrastructure provider for AI workloads.

However, this massive expenditure has begun to put pressure on free cash flow. Although it generated $20.8 billion in operating cash flow for the fiscal year 2025 (ending May 31, 2025), this figure is significantly lower than the expected $35 billion in capital expenditures for 2026. Part of the shortfall will be exacerbated in fiscal year 2026, but the remaining portion still needs to be raised through other means—be it cash from the balance sheet or external funding. Furthermore, these commitments indicate that technology companies may cut back on shareholder rewards in the form of dividends and stock buybacks.

In contrast, Amazon and Microsoft have adopted different strategies to expand AWS and Azure. Their massive cloud spending is funded by the substantial free cash flow from their core businesses, which allows them to avoid over-reliance on debt.

Oracle's liabilities exceed $90 billion. Total liabilities of $156 billion are more than six times its $25 billion in stock, while the current ratio is below 1, indicating that short-term debt exceeds current assets.

In simple terms, Oracle is operating with tight liquidity and heavy leverage — which is not uncommon for mature tech companies, but still poses challenges when combined with large-scale capital expenditures. Rising interest rates will only increase the pressure, as refinancing or issuing new debt will become more expensive.

Oracle's leveraged balance sheet makes it difficult to raise funds to meet its large capital expenditure needs. The good news is that Oracle's high market capitalization suggests that equity may still be obtainable.

Oracle's growth targets are quite ambitious. Management expects OCI to grow by 77% in fiscal year 2026, reaching over $140 billion within a few years, which is directly related to Oracle's $455 billion backlog and billions of dollars in AI contracts, including high-profile collaborations with OpenAI.

But expanding global infrastructure is a complex task. Building data centers, acquiring chips, managing energy demands, and maintaining reliable uptime requires immense operational discipline. Unlike Oracle's traditional software business, cloud infrastructure typically has lower profit margins—at least until it reaches scale.

Oracle's breakthrough of the trillion-dollar milestone marks a significant change for a company that was once considered traditional. The story of AI and the cloud is real, and its backlog provides visibility that competitors find hard to match.

But investors should not overlook the other side of the bill. High expenditures, high leverage, and complex execution demands make this transition riskier than it initially appears. Oracle may become one of the most important infrastructure providers for AI. However, before investors believe that the stock can steadily rise, they must remember these hidden risks. A few quarters of performance will provide more clues, and investors should closely monitor Oracle's performance.