Oracle's shares rose as much as 7.8% on Friday after a $26 billion increase in its revenue backlog eased some concerns about its debt-fueled spending spree.
The stock later reversed course to close about 2% lower, as analysts said a recovery in cash flow remains some way off.
Roughly half of the $664 billion in its backlog is expected to convert into sales within the next 36 months and much of its newly contracted revenue will not require its own capital, Oracle said, as it relies on client prepayments and customers' own chip supply to build out capacity.
That, coupled with upbeat first-quarter earnings and an improving balance sheet, helped Oracle's shares recover from a spell of underperformance.
The stock has fallen about 23% this year as of Friday's close, compared with a nearly 12% rise in the S&P 500 index .SPX, as investors questioned Oracle's costly AI bets and the viability of its traditional software business in the AI era.
"Despite Oracle asking customers to partially fund the technical hardware to alleviate its cash flow pressure, we do not foresee Oracle's cash flow profile changing anytime soon," Morningstar analyst Luke Yang said.
"It will take years before (cloud) revenue reaches a scale that supports continuous capacity expansion while generating positive cash flow at the same time."
Oracle carries risks around financing and data center profitability at a time when component costs have surged and broader backlash to data center development has grown in the U.S.
The company has said it will raise $40 billion through debt and equity financing in its current fiscal year, including the $20 billion stock sale it completed in the first quarter.
It reported negative free cash flow of $5.40 billion on Thursday, above analysts' average estimate of a cash burn of $9.56 billion, according to data compiled by LSEG.
"(The) results were a solid step forward in balancing the investor discussion around a company delivering accelerating revenue growth, at scale. While the company's debt load is a valid concern, the positives in the business have gotten lost in the mix," Evercore analysts said.
The stock trades at 16.86 times its forward earnings estimates, compared with Microsoft's MSFT.O 23.84 multiple and Amazon's AMZN.O 22.58.
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