Wall Street is currently assigning no value to Oracle Corp.'s $630 billion backlog of artificial intelligence compute revenue, a misjudgment that could lead to significant repricing, according to Gil Luria, managing director and head of Technology Research at DA Davidson. Luria argues that while investors initially overhyped Oracle's AI prospects following its September 2025 partnership with OpenAI, they have now swung too far in the opposite direction by treating the massive contracted revenue stream as if it carries negative value.

The shift in sentiment began when Oracle announced its collaboration with OpenAI, causing the company's backlog to jump from roughly $150 billion to $450 billion in a single day. At the time, Luria noted that "everybody was on the bandwagon," crowning Oracle as the definitive AI winner. However, enthusiasm quickly evaporated as investors realized that much of this backlog was tied to OpenAI, a startup that then had limited revenue and capital. This raised concerns about whether those long-term infrastructure commitments would ever translate into actual cash flow.

Changing Investment Thesis

Luria asserts that the investment thesis has fundamentally changed since those early doubts emerged. Once OpenAI secured fresh funding and clarified that many of its infrastructure agreements were flexible rather than fixed obligations, the risk profile shifted dramatically. Luria stated, "They are going to pay their Oracle bills," arguing that OpenAI has narrowed its focus to compute and now possesses the resources to honor the commitments that matter most. This development should have prompted investors to reassess the value of Oracle's future revenue streams, but instead, skepticism has deepened.

The $630 Billion Disconnect

Despite these developments, Luria believes Wall Street continues to miss the bigger picture. He highlighted that Oracle's entire backlog, now valued at $630 billion worth of compute revenue, is being valued by the market at zero. Luria even suggested that investors could argue the backlog is being valued at less than nothing, with the market treating it "almost...negative to some extent." This disconnect implies that if Oracle's AI customers continue converting long-term compute commitments into revenue, the market may eventually need to reprice a backlog that currently receives virtually no credit despite representing hundreds of billions of dollars in future business.

What the Numbers Show

The divergence between Oracle's reported backlog and its market valuation highlights a significant gap in investor perception. While the backlog grew from $150 billion to $450 billion overnight in September 2025 and has since expanded to $630 billion, the market's failure to assign any positive value to these contracts suggests a deep-seated fear regarding execution risk or customer solvency. However, Luria's analysis points to the flexibility of these agreements and OpenAI's improved financial position as key factors that mitigate these risks, suggesting the current valuation may be overly pessimistic.

Larry Ellison's net worth declined by $5.25 billion on Friday, reducing his total fortune to approximately $166 billion and dropping his global ranking to eighth richest. The loss was driven primarily by a sharp sell-off in Oracle stock, which plunged from a record high of $345 to $114, its lowest level since April 2024. This equity erosion wiped billions off the company's market value, contributing to Ellison's year-to-date losses exceeding $80.9 billion, down from a peak fortune nearing $400 billion.

Oracle's share price retreat contrasts with strong operational metrics disclosed in recent results. Revenue jumped by 21% to $19.2 billion, while remaining performance obligations (RPO) surged by $85 billion to reach $638 billion. Wall Street analysts maintain optimism regarding the company's growth trajectory, with average estimates projecting a 28% revenue increase in the last quarter to $19.12 billion. Annual revenue is expected to rise by 32.6% this year, approaching nearly $90 billion.

Debt Concerns Weigh on Valuation

Investor sentiment has been dampened by concerns over Oracle's expanding debt load. The company announced plans to raise over $40 billion this year through equity and debt issuances, following a $43 billion raise in the previous year. Total debt has consequently jumped to over $122 billion. Bond yields have reflected this pressure, with the 2035 bond yield rising to 6.615% and the 2052 bond soaring to 8% from a year-to-date low of 5.87%. These factors have made Oracle one of the worst performers in the S&P 500 Index this year.

Valuation Metrics and Tesla Exposure

Despite the price decline, Oracle's valuation has become more attractive relative to peers. The company now trades at a forward price-to-earnings ratio of 14, significantly lower than the sector median of 23 and its five-year average of 22. Analysts suggest this discount may trigger a rebound once bargain hunting resumes.

Ellison's wealth reduction is also influenced by weakness in Tesla stock, in which he holds an estimated 1.4% stake valued at approximately $15.6 billion. Tesla shares dropped to $306 on Friday, their lowest level since July 28, representing a slump of over 38% from their peak earlier this year. This decline reduced the value of Ellison's Tesla holdings from $22.4 billion at their peak.

What the Numbers Show

The divergence between Oracle's fundamental growth and its stock performance highlights a market focus on leverage rather than revenue generation. While RPO jumped to $638 billion and revenue grew by 21%, the simultaneous expansion of total debt to over $122 billion has introduced volatility. The compression of the forward P/E ratio to 14, well below its five-year average of 22, suggests that current pricing may be overly punitive relative to the company's earnings power, creating a potential value opportunity if debt concerns stabilize.