Stifel lifts Oracle stock rating on durable cloud gains

Stifel upgraded Oracle (ORCL) to Buy with a $250 price target, citing expectations for sustainable cloud growth driven by robust demand for AI workloads and multi-cloud adoption. The firm noted Oracle's remaining performance obligations surged 41% to $138 billion, prompting a planned 20% increase in FY26 capital expenditure to $25 billion and a doubling of data centers. Stifel projects cloud revenue to grow in the high 30% range annually, reaching $46.5 billion by 2027, contributing to overall revenue increases of 16% in FY26 and 20% in FY27. Despite near-term gross margin pressure from increased capex, operating expense discipline is expected to maintain overall profitability, leading to accelerating EPS growth from FY27.

Analysis

Stifel has upgraded Oracle Corp. to Buy from Hold, establishing a $250 price target based on a valuation of 30 times its fiscal 2027 earnings forecast of $8.35 per share. The core of the bullish thesis rests on sustainable growth in Oracle's cloud businesses, substantiated by a 41% year-over-year surge in remaining performance obligations (RPO) to $138 billion. This backlog growth is attributed to strong demand for AI-related computing power and the expansion of its multi-cloud strategy, which allows customers to run Oracle databases on platforms like AWS, Azure, and Google Cloud. In response to this demand, Oracle is significantly increasing its capital investment, with plans to raise capex by approximately 20% to $25 billion in fiscal 2026 and more than double its multi-cloud data-center presence to 47 within the next year. Stifel projects this will fuel cloud revenue growth in the high 30% range annually for the next two fiscal years, with total company revenue expected to increase by 16% in FY26 and 20% in FY27. While this aggressive spending is anticipated to compress gross margins in the near term, disciplined operating expense management is expected to preserve overall profitability, with operating margins projected to bottom out around 42% in FY26 before improving. The combination of sustained cloud growth and cost control is forecasted to drive accelerating EPS growth from fiscal 2027 onwards.

Key Decisions for Investors

• Investors should consider the robust growth indicators, such as the 41% increase in contracted future revenue and strong analyst forecasts, as a basis for a bullish stance on Oracle's long-term cloud and AI positioning.
• It is critical to monitor the company's gross margins and capital expenditure over the next several quarters, as the significant planned increase in data center spending presents a near-term risk to profitability if not managed effectively.
• The investment thesis is predicated on a multi-year horizon, with operating margins expected to bottom in fiscal 2026 before significant EPS acceleration occurs in fiscal 2027, suggesting the position may require patience through a period of heavy investment.