Rating: BUY | 12-M Price Target: $235 | Upside: +76% | Current Price: $135

Rating & Price Target

Oracle gets a Buy from us with a price target of $235 over the next 12 months. This equates to 74.1% upside from current levels of $135. We believe that Oracle can become one of the leading cloud infrastructures providers of the world. Selling everything from AI compute to cloud infra and databases.

What we like about Oracle is their cloud division called OCI. Oracle cloud infrastructure (OCI) allows them to sell compute to businesses and government. Along with AI cloud customers who are looking for GPU's, network and storage. With a massive installed base of customers who use oracle databases. Financial software, HR and other essential software Oracle will have a huge head start in the cloud.

For fiscal year 2027 first quarter Oracle was able to grow their OCI division by 121% year over year to $7.4B. Cloud revenue grew by 62% year over year to $11.6B. And total company revenue grew by 30% year over year to $19.3B. They were also able to book remaining performance obligation (contracted future revenue) of $664B.

We have our price target at $235 based on our belief that Oracle will continue to convert remaining performance obligation to revenue. While continuing to add AI capacity to their data centers and growing OCI. The risk is that they will have to build out many data centers and purchase hardware before they can realize the full revenue potential of there customers.

Our View: We think that Oracle can be a great way to play AI infrastructure. Since many may not realize how big their cloud division can be. Along with there huge amount of booked revenue. But we think there is some risk that comes with this investment. They will need to add capacity to meet there customer needs and manage capex properly. So we have moderate conviction in this stock.

Company Overview

Oracle has been around for many years selling database software to businesses. Their software is used by many different industries. Such as business, banks, government, hospitals and even telcos. They have branched out to sell many different cloud solutions and software. From cloud apps, to ERP, HR and other customer management software.

Currently Oracle cloud infrastructure (OCI) is there biggest area of growth. They sell cloud infrastructure similar to what AWS, MSFT and GOOG sell. Although they are smaller then each of these competitors they have become very popular with enterprise database customers and are selling larger chunks of cloud revenue to customers.

They don't need to displace these cloud providers from customers accounts. Oracle just needs to get there customers to migrate there oracle databases to there cloud. Oracle can also partner with other cloud providers to sell there databases to customers on their clouds as well.

With the rise of AI Oracle has found another opportunity to sell more cloud infrastructure. Many AI companies are looking for ways to purchase compute, network, storage and electricity. Oracle has found a way to capitalize on this trend by building more data center space. For fiscal year 2027 first quarter Oracle added 850 Megawatts of data center space and their GPUs were running at 97.9% utilization. Showing that there is still a lot of room for more data center space to be sold to customers.

Our View: We think Oracle has the upper hand against the other cloud providers with there large installed base of enterprise customers. Many of which will want to use there cloud offering instead of migrating to another cloud provider. There is a risk that they will not be able to add enough capacity to keep up with there competitors who have much larger cloud offerings.

Financials

Oracle had a great fiscal year 2027 first quarter. Revenue grew 30% year over year to $19.3B. Cloud revenue grew 62% year over year to $11.6B. And their OCI revenue grew by 121% year over year to $7.4B.

The one number we like to focus on for Oracle is there remaining performance obligation. Which means booked revenue that Oracle has not yet booked as revenue. They had $664B in remaining performance obligation at the end of there last quarter. An increase of $209B from the prior year. They expect to book about half of that as revenue over the next 36 months.

So although Oracle has a ton of backlog to convert to revenue they will have to build out more data center space. Purchase servers, GPUs and ensure that they can fulfill the needs of there customers.

Management raised their guidance for fiscal year 2027 to at least $90B in revenue. And at least $8.10 in Non-GAAP EPS. They expect to see revenue growth of 30%-34% in the second quarter and cloud revenue growth of 64%-71%.

The one thing that we are concerned about is there capex spend. Oracle will be spending around $90B-$95B in capex during fiscal year 2027. To build out there data centers and allow there customers to utilize more cloud space.

Our View: We think that Oracle can continue to produce strong cloud numbers. As they convert their remaining performance obligation to revenue. But they are going to need to spend more money on capex to build out more data center space. If they can produce good returns off of this then we see no problem. But if capex starts to out pace revenue and cash flow we may see the stock drop.

Catalysts

Oracle cloud infrastructure will be the catalyst for this stock. With the rise of AI we see many more companies wanting to build AI models and use AI for inference. All of this requires a lot of compute which will help Oracle continue to grow.

Another catalyst for Oracle is there installed base of enterprise customers. With so many customers using Oracle software they will want to migrate there software to the cloud.

We also think that Oracle can continue to grow by converting there remaining performance obligation to revenue. With $664B in remaining performance obligation we see this number being higher in the coming years.

Oracle will also continue to grow their cloud application revenue. Which can provide them with stable revenue streams as well.

Akrabi Group View

We believe that Oracle can continue to grow there OCI division at an elevated rate for the foreseeable future. As long as demand for AI and compute remains high we see Oracle being a great play on AI. We just have to see if they can convert that revenue to free cash flow after building all of there data centers.

Capital Allocation & Risks

Oracle is going to have to change the way that they allocate there capital. In the past they have returned a lot of money to shareholders through dividends and buy backs. But with the amount of money that they are going to have to spend on building out data centers. Oracle is going to have to find more capital to build out these facilities.

If Oracle can fill these data centers quickly they can see a huge return on investment. But with $90B-$95B of capex spend coming in fiscal year 2027 we could see some lower free cash flow.

Oracle will most likely look to issue debt or sell more equity to fund there data center build out. If they decide to issue more debt they will have to pay more interest on there borrowings. If they issue more equity they will be diluting their current shareholders. We will have to see how much revenue and operating income Oracle can produce to offset the capital spend that is coming.

The biggest risk that we see with Oracle is execution. They need to make sure that they build these data centers and can provide hardware and power to there customers. If AI slows down we could see some slower growth in revenue and earnings.

Our View: Oracle will have to spend a lot of capital to build out more data centers. We think this can be a huge benefit if they can sell all of the space that they build. But we also think that it could cause there free cash flow to decrease and cause investors to lose confidence.

Summary

We think that Oracle can be bought at current levels with our price target of $235. We think that Oracle will be a great play on AI and cloud infrastructure for the next many years.

Investors that are looking to gain exposure to AI data centers and cloud should look at buying Oracle. We think that Oracle can provide great returns over a long period of time.

Things to watch for are OCI growth and remaining performance obligation. As well as capex spend and free cash flow. We believe that Oracle has the ability to run up significantly from here.