Even Though Oracle Fell After Earnings, I'd Still Rather Buy It in December Over Every "Magnificent Seven" Stock (Except One)

The "Magnificent Seven" stocks have captured the spotlight in recent years because their success has driven the S&P 500 to new heights.

Recently, I ranked all seven of these stocks for 2026, with Microsoft (NASDAQ: MSFT) in first place, followed by Meta Platforms, Nvidia, Alphabet, Amazon, Apple, and Tesla.

If Oracle (NYSE: ORCL) were in the Magnificent Seven, I would rank it ahead of Meta and right behind Microsoft, even after the growth stock got crushed following the release of its second-quarter fiscal 2026 results this week. Here's why.

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Investors are underestimating Oracle's transformation

Oracle is getting significant attention of late for its cloud investments, which are purpose-built for high-performance computing. Rightfully so, as the company is growing faster than its competitors, securing massive deals. It has charted a clear path to become the largest cloud operator focused on artificial intelligence (AI) by 2031.

Oracle has been a major player in database and enterprise software for decades. In the early 2010s, it began rolling out infrastructure-as-a-service, platform-as-a-service, and software-as-a-service solutions. In recent years, Oracle has transformed its business model through exponential growth in cloud computing, which now makes up half of total revenue.

However, cloud could soon become Oracle's dominant segment. In September, Oracle management forecast that Oracle Cloud Infrastructure (OCI) revenue in fiscal 2026 would reach $18 billion, growing to $32 billion in fiscal 2027, $73 billion in fiscal 2028 as the bulk of data centers come online, $114 billion in fiscal 2029, and $144 billion in fiscal 2030.

Oracle is becoming the Nvidia of cloud computing

If Oracle comes even remotely close to these targets, its trajectory will be eerily similar to Nvidia, which transformed from making chips for gaming, automobile, and professional visualization to data centers and networking. In Oracle's case, OCI would be the high-octane growth segment, while its legacy software business would be the stable cash cow. That potential alone is why Oracle is impossible to ignore. But the red flags are glaring.

Oracle exited the recent quarter with non-current notes payable and other borrowings (which are basically long-term debt) of $100 billion, compared to cash and cash equivalents of $19.2 billion.

In the first half of fiscal 2026, Oracle spent $20.54 billion on capital expenditures compared to $6.27 billion in the first half of fiscal 2025. That rapid spending ate into Oracle's free cash flow (FCF), which went from $2.18 billion in the first half of fiscal 2025 to negative $10.33 billion in the first half of fiscal 2026. And that's even after accounting for a 16.9% increase in operating cash flow.

The best stock to buy for 2026

The primary reason Microsoft gains an edge over Oracle is that it offers a lower-risk yet potentially high-reward approach to investing in AI, cloud computing, software, gaming, and more. Unlike Oracle, which is burning through cash at a breakneck pace, Microsoft is generating its highest operating margins in a decade and has plenty of dry powder to fuel its long-term investments. It can even pull back on its stock buyback program if it wants to accelerate spending, or lean on its balance sheet, which has tons more cash, cash equivalents, and short-term investments than long-term debt.

So while Oracle has arguably more upside potential than Microsoft, Microsoft stands out as a balanced buy for long-term investors.

Daniel Foelber has positions in Nvidia and Oracle and has the following options: short March 2026 $240 calls on Oracle. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.