Oracle Earnings: Skyrocketing AI Data Center Demand Fuels Outlook

Key Morningstar Metrics for Oracle

• Fair Value Estimate: $205
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Oracle’s Earnings

Oracle’s ORCL remaining performance obligations for the first quarter increased 359% to $455 billion, primarily due to expanding relationships with large language model providers. Management also expects Oracle cloud infrastructure to grow 77% in 2026 and reach a five-year annualized growth of 70%.

Why it matters: Oracle’s five-year OCI revenue outlook of $144 billion means the business will have a size similar to Google Cloud by fiscal 2030, which completely blew our expectations. Incremental capital expenditure is necessary for Oracle to ramp up its data center capacity for new workloads.

• We have a fair degree of confidence in OCI achieving its five-year revenue goal based on this quarter’s colossal RPO figure. Oracle’s relationship with esteemed artificial intelligence firms, such as OpenAI, as well as its participation in Stargate, puts it center stage for AI training and inference workloads.
• We now model a peak capital expenditure of $88 billion by fiscal 2030, close to the investment scale of the other three leading hyperscalers. Consequently, we forecast three years of negative free cash flow for Oracle due to substantial investment pressure.

The bottom line: We are raising our fair value estimate for wide-moat Oracle to $330, from $205, after incorporating a materially higher OCI growth outlook. We see further upside to Oracle stock following the 28% after-hours jump, if Oracle can convert OCI bookings into revenue as planned.

• We believe OCI, like other hyperscalers, enjoys high switching costs due to technical challenges and additional costs of egressing data. Meanwhile, many enterprises are also getting comfortable with sourcing cloud computing capacity from multiple vendors, giving latecomers like OCI a chance.

Coming up: Oracle is hosting a financial analyst day at its AI World conference in October, where we expect to hear more about its long-term capex forecasts, a centerpiece of Oracle’s plan to meet significant client demands.