Oracle (NYSE:ORCL) stole the show today, with its stock jumping about 35% higher. The trigger wasn’t a tidy earnings beat, but rather the blockbuster outlook the company unveiled for its cloud and AI business. Investors quickly looked past a small miss on revenue and earnings per share, choosing instead to focus on the company’s ballooning backlog and a growth trajectory few could have predicted.
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The real stunner came from Oracle’s remaining performance obligations, essentially future contracted revenue, which leapt more than fourfold year-over-year. Management now expects this figure to top half a trillion dollars, giving investors unprecedented visibility into the company’s growth runway. On top of that, Oracle projected its cloud infrastructure revenue will climb from $18 billion this year to $144 billion over the next four to five years. Those forecasts were backed by multibillion-dollar deals with some of the biggest names in AI – OpenAI, xAI, Meta, NVIDIA, and AMD.
Bank of America’s Brad Sills, who had previously held back with a Neutral rating, couldn’t ignore the momentum. In a new research note this morning, the analyst upgraded ORCL stock to Buy and raised his price objective to $368, pointing out that Oracle’s transformation into an AI powerhouse is too compelling to dismiss. (To watch Sills’ track record, click here)
“The outlook for OCI revenue alone (51% 4-year CAGR) suggests a step function in demand,” Sills noted, underscoring the sheer scale of the growth ahead. Sills acknowledged that the company’s swelling capital expenditures, expected to reach $35 billion in fiscal 2026, still pose questions about returns, but he argues that the payoff could be substantial. By his estimates, Oracle’s AI-related capex is on pace to generate a “solid low 50s topline return in FY27,” which would put it on par with pure-play AI infrastructure firms.
Sills also points to Oracle’s engineering DNA, noting that its track record of building high-performance software and hardware gives weight to its claim of delivering lower-cost AI compute.
“Although profitability of AI workloads remains a key debate, it is clear that Oracle is capturing share in the large and rapidly growing market for AI infrastructure,” the analyst said, adding that the company’s gross margins should remain flat or even improve.
In Sills’ view, Oracle’s history as a software leader could translate into building value-added managed services for AI over time, while its database and applications businesses create a natural pull-through for AI compute in what he described as a “one stop shop solution.”
Still, the rally leaves a valuation puzzle for Wall Street. ORCL has decent support among analysts, with a Moderate Buy consensus rating based on 23 Buys and 11 Holds. Yet, after the stock’s sharp gains, the average price target of $263.93 suggests a 21% downside from current levels. (See ORCL stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.