Oracle Corporation has recently gained attention as a significant player in the artificial intelligence (AI) sector, particularly following a notable upgrade from UBS analyst Karl Keirstead. On September 10, Keirstead raised Oracle’s price target to $360 from a previous target of $280 while maintaining a Buy rating for the stock. This upgrade aligns with Oracle’s impressive disclosure of an incremental backlog totaling $317 billion, a factor that underpins the forecast for substantial growth in its cloud infrastructure segment.
The company aims to expand its cloud infrastructure segment from $10 billion in fiscal year 2025 to an anticipated $144 billion by fiscal year 2030. Although Oracle has not publicly named its customers, many analysts believe that a significant portion of this growth is expected to stem from a partnership with OpenAI. Reports suggest that OpenAI has signed a contract with Oracle for $300 billion in computing power over the next five years, further solidifying Oracle’s role in the AI landscape.
Analysts highlight that the key takeaway from Oracle’s quarterly report is the staggering $317 billion backlog, which is projected to fuel the company’s growth trajectory. Keirstead emphasized that this backlog supports a projected 14-fold increase in the company’s cloud infrastructure revenue over the next five years. He mentioned that while OpenAI will likely contribute over $100 billion to Oracle’s growth, other companies, such as xAI and Meta, are also expected to play significant roles. This diverse customer base helps lower the risk profile of Oracle’s stock, even as there remains a high level of concentration with OpenAI.
Additionally, Oracle is forecasted to experience mid-teens growth in operating income for fiscal year 2026, signaling effective management of operating expenses and headcount. The revenue estimates for fiscal year 2029 have been adjusted upwards from $134 billion to $163 billion, and the operating margin estimate has been slightly revised from 38% to 37%. Furthermore, the non-GAAP earnings per share estimate has been increased from $12.51 to $13.98.
Despite growing optimism about Oracle’s potential as an investment, some analysts caution that other AI stocks may offer greater upside potential and reduced downside risk. For investors specifically seeking undervalued AI stocks poised to benefit from trends like onshoring and the lasting effects of Trump-era tariffs, alternative options may be worth exploring.
As the AI sector continues to evolve, Oracle’s strong foundational elements and promising growth projections position it as a noteworthy consideration for investors in this rapidly changing market.
