Oracle stock rating maintained by Morgan Stanley amid growth outlook

Following Oracle's Q4 results and FY26 guidance, Morgan Stanley reiterated its Equalweight rating with a $175 price target. Oracle projects significant growth, including RPO growth over 100%, OCI acceleration to over 70%, and overall cloud revenue jumping to over 40% in FY26, potentially reaching a $280 billion backlog. While Q4 showed mixed signals with RPO increasing only 6% Q/Q, database revenues from Amazon, Google, and Azure grew 115%, and SaaS offerings also showed strong growth, prompting several firms including BofA, JPMorgan, and Wolfe Research to raise their price targets, though concerns remain around increased capital expenditures.

Analysis

Oracle has presented an ambitious fiscal 2026 outlook following its recent fourth-quarter results, projecting remaining performance obligation (RPO) growth exceeding 100% to reach approximately $280 billion in backlog, Oracle Cloud Infrastructure (OCI) revenue acceleration from 50% to over 70% year-over-year, and overall cloud revenue expanding from 24% to over 40% of total revenue. This guidance, if achieved, signifies substantial expansion from its current annual revenue of $55.8 billion and EBITDA of $22.9 billion. Supporting this optimism, Oracle's database revenues from Amazon, Google, and Azure platforms surged 115% quarter-over-quarter, and strategic SaaS offerings like Fusion Cloud ERP and NetSuite Cloud ERP grew 22% and 18% year-over-year respectively. The company also plans to nearly triple its multicloud datacenter locations by adding 47 new sites. However, the fourth-quarter RPO increase of just 6% quarter-over-quarter, or $8 billion, fell below the five-year average of 17%, presenting a contrast to the aggressive forward-looking RPO targets. Oracle currently trades at a P/E ratio of 40.4x with premium valuation multiples. While several analysts, including BofA Securities (PT $220), JPMorgan (PT $185), and Wolfe Research (PT $215), raised price targets post-results, Morgan Stanley maintained an Equalweight rating with a $175 target, though noting a potential $230 valuation if Oracle meets its $104 billion fiscal 2029 revenue target yielding $12 EPS. Concerns persist regarding the company's plan to increase capital expenditures to $25 billion in fiscal 2026, which could pressure free cash flow, a point highlighted by Stifel (PT $180).

Key Decisions for Investors

• Investors should assess Oracle's capacity to execute on its highly ambitious fiscal 2026 growth targets, particularly for RPO and OCI, given the recent quarter's more modest RPO growth.
• Consider the balance between the significant long-term cloud revenue potential, evidenced by strong multi-cloud database and SaaS growth, against the current premium valuation and the substantial increase in capital expenditures planned for fiscal 2026, which may impact near-term free cash flow.
• Monitor upcoming quarterly RPO figures and OCI growth rates closely as key indicators of Oracle's progress towards its aggressive multi-year financial objectives and the sustainability of its cloud momentum.