Oracle stock outlook: analysts see more upside as AI growth gains momentum

Oracle shares rose 6% in premarket trading on Friday after stronger-than-expected quarterly results and an upbeat outlook helped ease investor concerns over the cloud computing company’s debt-funded artificial intelligence spending.

The enterprise software giant reported first-quarter revenue of $19.35 billion, ahead of the $19.14 billion consensus estimate from LSEG.

Net income reached $4.7 billion, up 60% from $2.93 billion a year earlier.

The results offered investors fresh evidence that Oracle’s aggressive investment in AI infrastructure is beginning to translate into stronger cloud growth and future revenue visibility.

Overall, analysts saw the results as a positive step for Oracle, with stronger growth and bookings outweighing concerns over its heavy spending.

The key risks remain margins, capital intensity and the pace at which its $664 billion backlog converts into revenue.

Cloud growth accelerates

Oracle’s cloud business remained the main driver of the quarter.

Cloud revenue climbed 62% year over year to $11.6 billion, while cloud infrastructure revenue surged 121%. Cloud application revenue increased 10%.

The company also signed more than $30 billion in additional AI cloud contracts during the quarter, lifting its revenue backlog, measured through remaining performance obligations, to $664 billion.

That was above analysts’ estimate of $639.89 billion, according to Visible Alpha.

Oracle’s RPO increased by $26 billion from the previous quarter, with management saying much of the backlog is expected to convert into revenue over the next 36 months.

The company attributed the increase to demand for AI cloud training and inference services continuing to grow faster than its ability to supply capacity.

Oracle expects second-quarter revenue to increase between 30% and 34%, with cloud revenue forecast to grow 64% to 70%.

For fiscal 2027, the company now expects revenue of "at least $90 billion", compared with its previous outlook of $90 billion.

It also raised its adjusted earnings-per-share forecast for fiscal 2027 to $8.10 from $8.05.

Data center execution eases concerns

Oracle’s results come after months of investor scrutiny over whether its enormous AI infrastructure investments would generate sufficient returns.

The company has been spending heavily to expand data centers and cloud capacity while taking on debt and raising capital to fund the buildout.

That has put pressure on cash flow and fueled concerns about its ability to finance continued expansion.

The stock has lost about 22% this year.

For the August quarter, Oracle reported capital expenditure of $28.5 billion, significantly above the $19.23 billion analysts had expected.

However, the company also reported that 850 megawatts of AI compute capacity came online during the quarter, three times the amount delivered in the entire fourth quarter.

J.P. Morgan analysts led by Samik Chatterjee said the results addressed several investor concerns, including the sustainability of backlog growth, its conversion into revenue amid data-center delays and the possibility of further capital raises.

"We got both better in-period execution and future-period bookings than anticipated. Check and check," analysts led by Jackson Ader at KeyBanc Capital Markets said.

They noted that the 850 megawatts of capacity coming online pushed back against concerns that delays to data-center projects could affect near-term revenue recognition.

Analysts turn more positive

Several analysts responded positively to the results, with Citi reiterating its Buy rating and saying Oracle had “cleared the runway” for its upcoming Investor Day.

“Oracle delivered a solid fiscal first quarter that checked nearly every box and reinforces the bull case heading into Investor Day,” the analysts said.

Citi described Oracle’s fiscal 2027 outlook as “modest” and management’s framework as “conservative”, arguing that the scale of the first-quarter outperformance could leave room for upward revisions.

“Given the magnitude of fiscal first-quarter outperformance, we see a favorable setup for upward revisions at Investor Day and AI World,” the analysts added.

Barclays also raised its price target to $252 from $250 while maintaining an Overweight rating.

That is a 65% upside from Thursday's close.

The firm said investors could be ready to reassess Oracle following the earnings report as growth momentum improves and financing uncertainty eases.

“The company’s growth inflected and should continue to accelerate from here,” Barclays said in a research note cited by TheFly.

Barclays also highlighted Oracle’s completion of its $20 billion at-the-market equity offering, which it said reduced uncertainty over how the company will fund its expansion.

Scotiabank maintained its Outperform rating, while Citizens analyst Patrick Walravens reiterated a Market Outperform rating and a $285 price target.

Margin pressure remains a concern

Not all analysts were entirely bullish.

Morgan Stanley analysts led by Sanjit Singh pointed to pressure on Oracle’s gross margin and the relatively modest increase in its fiscal 2027 earnings guidance.

The analysts said investors would want to see further stabilization in gross margins and more clarity on when new data centers will become operational.

Oracle’s analyst day, expected in late October, could provide those details.

Stifel analyst Brad Reback lowered the firm’s price target to $200 from $220 while maintaining a Buy rating.

Reback called the quarter “a strong quarter” and highlighted Oracle’s decision to raise its fiscal 2027 revenue forecast to more than $90 billion.

That outlook implies roughly 120% growth for Oracle Cloud Infrastructure, according to Stifel.

However, the firm expects lower gross margins in the near term even though it believes the impact could eventually be offset by faster OCI growth and greater operating expense efficiencies.

Investor Day becomes next test

Oracle’s latest results have strengthened the argument that its AI spending is beginning to produce tangible growth, but the scale of its capital requirements means investors are likely to remain focused on cash flow, margins and financing.

The company’s $664 billion backlog provides significant visibility, but converting that pipeline into revenue will depend on Oracle continuing to bring new data-center capacity online.

The company’s completion of its $20 billion equity offering also removes some immediate funding uncertainty, although its capital spending remains exceptionally high.

With cloud growth accelerating, AI contracts expanding and data-center capacity coming online faster, Oracle has given investors a stronger case for its spending strategy.

The next question will be whether management can sustain that momentum while improving margins and generating enough cash to support its AI ambitions.

For investors, the upcoming Investor Day could therefore prove as important as the earnings report itself, particularly if Oracle uses the event to provide a clearer roadmap for its AI infrastructure expansion, revenue growth and capital requirements.