The Market Brushed Aside Oracle’s (ORCL) AI Story. That Looks Like a Mistake Now

Oracle (ORCL), long brushed aside as a legacy enterprise software company with limited relevance in artificial intelligence (AI), is starting to look increasingly credible in the current infrastructure boom. After many months of investor skepticism around its ability to become a major hyperscaler, Oracle is finally starting to shift the narrative.

Claim 55% Off TipRanks

More importantly, the latest hyperscaler earnings season helped validate the broader AI infrastructure cycle, with Microsoft (MSFT), Amazon (AMZN), and Google (GOOGL) all reiterating strong AI demand trends. In Oracle’s case — where the stock had been heavily pressured by funding and leverage concerns — the reaction tends to become much more explosive as fears around demand normalization begin to fade. As a result, Oracle’s 12-month stock performance has begun to converge with the broader market once again.

Although Oracle is by no means a low-risk story, I believe the thesis looks increasingly constructive today. The company continues to rely heavily on debt-funded AI capex, and execution remains critical. The combination of accelerating Oracle Cloud Infrastructure (OCI) growth, the half-trillion-dollar Remaining Performance Obligations (RPO) backlog, and improving visibility around the funding model continues to support the bull case. For that reason, I rate Oracle stock as a Buy.

The Market Finally Started Believing Oracle’s AI Spend

Before Oracle reported its Q3 results a couple of months ago, the market was primarily concerned about one key factor: the company was “spending” very aggressively — roughly $45–$50 billion in AI capex for FY26 — relative to its revenue base and cash generation. Unlike hyperscalers such as Microsoft and Amazon, which operate businesses generating roughly $140 billion in annual operating cash flow, Oracle generates cash flows closer to $20 billion.

However, the tech space is currently in an AI arms race. Clearly, “stopping investment” is dangerous, as is “continuing to invest without visible monetization.” I would argue Oracle initially looked stuck in the latter category.

What has changed recently, and what likely drove the strong re-rating in ORCL stock, is that the company has finally started proving that capex is translating into monetization. In this case, the Q3 numbers showed a major acceleration in OCI, with Infrastructure as a Service (IaaS) growing 84% year-over-year, RPO surging to $553 billion, and strong upfront customer commitments.

At the same time, hyperscalers’ earnings season also became very important for Oracle’s narrative. Microsoft, Amazon, and Google essentially validated the thesis in Q1, as Azure AI demand remained very strong, AWS AI accelerated, and Google Cloud continued to improve.

So far, the market has started warming up to the idea that Oracle’s capex cycle may not be as reckless as previously feared. That is especially true given the repeated signs at this stage of the AI arms race that demand is genuinely absorbing supply. Oracle arguably stands to benefit even more from this shift in sentiment than hyperscaler peers, since its bear case remains much more heavily exposed to funding risk and leverage concerns.

The $553 Billion Question Now Comes Down to Execution

If the market seems to be warming up to the CapEx story, the next test for Oracle is execution. The half-a-trillion dollars in RPO is not immediate cash, and it’s only realizable if there’s sufficient installed capacity. That requires building data centers, securing power, recognizing revenue, and only then converting that into margins and free cash flow. That’s why the thesis has effectively become an execution story.

The most important statement from management during the last earnings call was that they want to “uncouple capex from Oracle’s capital requirements.” In practice, that would be achieved through a combination of Bring Your Own Hardware (BYOH) structures, upfront customer payments, and partners financing data centers and power capacity.

Under this new model, Oracle has already signed more than $29 billion in contracts combining BYOH structures and upfront payments, allowing the company to continue expanding without cash flows turning negative.

At the same time, Oracle has already stated that it intends to raise up to $50 billion through a mix of debt and equity financing to fund the AI buildout. However, the important detail is that the company already raised $30 billion very quickly through a combination of investment-grade bonds and mandatory convertible preferred stock. The remainder could come from other parts of the program, but management has stated that there is a defined “financing envelope” and that preserving the company’s investment-grade rating remains a priority.

In simple terms, if even a small portion of Oracle’s $553 billion RPO converts into highly recurring revenue over the next three to five years, the company’s current AI buildout starts to look much more reasonable. In that scenario, today’s $45–$50 billion financing and capex needs appear far less outrageous.

Oracle’s Earnings Power May Still Be Underappreciated

Even after the massive sell-off since its peak last September, Oracle stock is still not cheap based on near-term earnings. At roughly 25x–26x FY26 earnings and 23x–24x FY27 earnings, the stock continues to trade at a premium multiple, especially compared to larger hyperscalers with stronger balance sheets.

That said, I would argue the setup becomes increasingly compelling if management can successfully execute on the AI infrastructure backlog. If consensus estimates are even directionally right and earnings per share (EPS) reach nearly $12–$14 by FY29, the current share price would imply only about 11x–12x forward earnings.

At that point, the core risk-reward setup becomes much more interesting. Oracle is clearly not a low-risk stock today, but the market may still be underestimating the company’s out-year earnings power if the $553 billion RPO ultimately converts into revenue, margins, and free cash flow.

Is ORCL a Buy, Hold, or Sell, According to Wall Street Analysts?

Oracle stock currently carries a Strong Buy consensus rating from Wall Street analysts. Of the 34 ratings issued over the past three months, 28 are rated Buy while six are Hold. The average price target sits at $243.17, implying a potential upside of roughly 25.45% from current levels.

Oracle’s Setup Looks Increasingly Constructive

Oracle’s story is ultimately all about execution. Today, that execution story looks increasingly feasible, given the strong demand already emerging and the massive backlog the company has built up.

The broader validation of the AI cycle by other hyperscalers, combined with Oracle already delivering capacity itself, reinforces what I believe is the most constructive path forward for the company. Meanwhile, the biggest concern around the thesis — the funding model — also looks increasingly less risky than it did just a few months ago.

For that reason, I continue to see a constructive setup for ORCL shares, which arguably still are not trading at a major premium relative to their long-term EPS potential.