Morningstar

Oracle Earnings: Solid Steps Toward Long-Term Revenue Goals via On-Time Capacity Delivery

We’ve raised our fair value estimate of Oracle stock.

The Oracle logo is on display on a pavilion.
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Securities in This Article
Oracle Corp
(ORCL)

Key Morningstar Metrics for Oracle

  • Fair Value Estimate
    : $220.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : Narrow
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Oracle’s Earnings

Oracle’s ORCL first-quarter total revenue grew 30% year over year, supported by robust cloud revenue growth of 62%. Cloud infrastructure revenue growth of 121% outpaced our expectations by over 500 basis points. Although gross margin dropped to 60%, operating margin expanded to 35%.

Why it matters: Oracle delivered 850 megawatts of data center capacity containing over 300,000 GPUs, which nearly tripled its delivery from last quarter. Total remaining performance obligations were up by over $30 billion in the quarter to $664 billion, a $209 billion increase from a year ago.

  • Based on our estimates, the GPUs delivered in the quarter are predominantly Nvidia Blackwell racks, with GB200 NVL72 outnumbering GB300 NVL72. Besides a 98% utilization rate, GPUs up for renewal in the quarter could generally command a 20% premium even for older-generation chips.
  • Management mentioned that GPT-6 Astra was trained on OCI’s Abilene data center, showcasing Oracle’s ability to supply world-class cloud infrastructure. Continued client diversification and prepayments should mitigate investor concerns around financing and customer concentration.

The bottom line: We increase our fair value estimate for narrow-moat Oracle to $220 per share from $207 based on more favorable near-term GPU pricing. Shares look undervalued. Oracle stock rallied 4% after hours, making up for the decline in Sept. 10 trading.

  • The market seems satisfied with Oracle’s data center ramp-up so far. We believe on-time capacity delivery is the most important factor that transforms Oracle’s mega backlog into revenue growth. Any project delays or supply chain bottlenecks can lead to downsides to our fair value.
  • We also like Oracle’s open enterprise AI ecosystem, which allows users to choose from GPT, Gemini, Grok, and different open-source models. Model flexibility caters to different workflows, which should drive higher platform usage and reinforce Oracle software’s switching costs.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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