(Rewrites throughout)

By Deborah Mary Sophia

Sept 11 (Reuters) - Oracle (ORCL.N) shares rose 6% before the bell on Friday after it reported a $26 billion jump in first-quarter revenue backlog, proving its massive debt-driven spending spree on data centers was powering strong growth in its cloud business.

The company said that roughly half of the $664 billion in its backlog is expected to convert into sales within the next 36 months and that much of its newly contracted revenue will not require its own capital, as it relies on client prepayments and customers’ own chip supply to build out capacity.

That, coupled with upbeat quarterly earnings and an improving balance sheet, helped Oracle shares break a spell of underperformance.

The stock has fallen more than 21% so far this year, compared with a nearly 11% 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.

”(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.

Oracle still carries risks around financing and data center profitability, however, at a time when component costs have surged and broader backlash to data center development has grown in the U.S., raising concerns about potential project delays.

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.

“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 is on track to add more than $26 billion in market value if gains hold.

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, according to data compiled by LSEG.