Oracle is not a buy due to excessive debt and negative free cash flow outweighing its AI growth potential.

For the one that might blow your mind, Oracle, ORCL. This is the single biggest puzzle on the market right now. The stock has crashed roughly 57% from its highs, down about 24% just this year, down 38% over the last 12 months.

And yet, the business underneath it is growing at a pace that the old, boring Oracle could never have imagined. That contradiction is the entire story.

The bull case is staggering. Oracle quietly became one of the biggest winners in AI. Its cloud infrastructure business grew 93% in a single quarter. Its multi-cloud database business grew over 400%.

Total revenue hit 67 billion last year, and management is guiding to roughly 90 billion next year alone. That is 34% growth for a company this size.

And here's why. AI companies are desperate for data centers, for chips and power, and demand has completely outrun supply. Oracle went all in building the capacity that everyone else is fighting over.

And the backlog of already signed future business hit a staggering $638 billion. Guys, that's up 363% in a single year. Those are the kind of numbers you hear from startups, not from companies that have been around for 50 years.

Yet, the stock trades at only about 18 times next year's expected earnings. For that kind of growth, that looks like a bargain if it all works out. But here's the scariest bear case of all.

You need to hear every word of this. To build all this capacity, Oracle's spending an absolutely staggering amount of money. Last year, for every dollar they brought in in revenue, are you ready for this?

They spent 83 cents of it on construction. So much spending that it's free cash flow went negative. Negative to the tune of $24 billion. Next year it may spend 90 to 95 billion just on building things alone.

That could be more than its entire yearly revenue. It's credit rating has already been downgraded and here's the part that should really make you think. Roughly half of that massive $638 billion backlog is estimated to come from one customer.

Open AI. If Open AI stumbles, if it slows down, if it hits a wall, Oracle could be stuck holding enormous expensive empty data centers with no one to fill them. On top of its regular debt, Oracle is committed to roughly $260 billion more in future data center leases.

That's exactly why just glancing at a simple PE ratio on the stock can be dangerously incomplete. Never forget, signed up revenue is not the same as actual revenue or profit.

So the question is this, is Oracle's $95 billion spending spree the next jet great cloud empire or is it setting up one of the biggest most expensive mistakes in the history of technology?

Guys, $435 billion market cap. This is the negative cash free cash flow. Guys, look at this enterprise value, 600 billion. That's a $165 billion difference. That's their essential debt.

Even if we look at their net income and say that's real, it's almost 10 times its net income just in debt. That's problematic. That's an issue and Oracle's debt has always been my issue about the company.

On top of that, they're they're saying we're going to spend all this money and we're going to keep paying this $5.8 billion dividend every single year." Okay. Great.

Now, some positives. Profit margin is up, 22% a year for the last 10, 20% for the last five, 25% over the last 1 year. Return on capital similar to S&P Global, 15% a year for the last five, but dropped down to sub 10% here.

So, guys, some good stuff here. It's just that debt level just keeps me going

So, here's our eight pillars. For a company this big, that's a lot of X's, a lot of debt. Shares outstanding are up, cash flow is down. Free cash flow and PE are insanely high.

Net income is up, revenue is up 27 billion. So, there's some positives here. But again, guys, the negatives on that debt are just staggering.

Look at this. Analysts have their profit growing from $7.50 to $24 a share. That's 3X over the next five years. Guys, that's insane. And then their revenue growing from 67 billion to 257 billion.

That's 4X over the next five years. I'm actually surprised. I'm wondering how the revenue grows 4X, the profit's only up 3X. That's what's confusing to me, which is kind of interesting.

So, here are my assumptions for the next 10 years. I did 8, 13, and 18% revenue growth. I did profit of 20, 22, and 24%. I did a PE cuz they have pretty solid ROICs. I did a PE of 17, 20, and 23.

And finally, my 9 and 1/2% desired return. But I've got to remind you guys, that debt level is a lot. You have to factor that into your analysis cuz remember, the stock analyzer does not factor in the balance sheet.

So, I hit the analyze button. I scroll down and I have a low price of 110, high price of 340 and a middle price of 193, which shows me about a 13% return based on today's price.

And remember, guys, this includes that dividend, so don't add it on top of there. But again, for me, that debt level is just way too high.