‘Key AI enabler’: BofA upgrades Oracle to Buy after exceptional Q1 print

Bank of America upgraded Oracle to Buy with a $368 price target, citing the company's strong first-quarter performance and an exceptional 230% quarter-on-quarter surge in remaining performance obligations (RPOs), which propelled shares over 31% premarket. This positions Oracle as a key AI infrastructure enabler, attracting marquee clients like OpenAI and NVIDIA, despite ongoing debates regarding AI workload profitability and rising capital expenditures projected to reach $35 billion by FY26. BofA, shifting its valuation methodology, forecasts significant revenue growth and a strengthening competitive moat as Oracle leverages its cloud and database offerings to capture AI compute share.

Analysis

Bank of America's upgrade of Oracle to 'Buy' with a raised price objective of $368 is predicated on an exceptional 230% quarter-on-quarter surge in the company's remaining performance obligations (RPOs), which triggered a more than 31% premarket share price increase. This dramatic growth in backlog solidifies Oracle's emerging role as a key enabler in artificial intelligence infrastructure, a view supported by BofA's forecast of a 51% four-year CAGR for Oracle Cloud Infrastructure (OCI) revenues. The company's credibility is bolstered by a growing roster of marquee AI clients, including OpenAI, xAI, Meta, and NVIDIA, which validates its strategy and market traction. However, this aggressive push into AI necessitates a significant increase in capital expenditures, projected to reach $35 billion by fiscal 2026. While the profitability of these AI workloads and the ultimate return on this investment remain a key debate, BofA anticipates a 'solid low 50s topline return' by fiscal 2027. Reflecting this accelerated growth outlook, the bank has shifted its valuation methodology to a premium 12.4x EV/Sales multiple on calendar year 2027 estimates, arguing that Oracle's competitive moat is strengthening as it integrates its AI infrastructure with its established database and applications portfolio.

Key Decisions for Investors

• Investors should recognize the fundamental shift in Oracle's growth profile, where the 230% QoQ RPO surge offers tangible evidence of its successful pivot to a high-growth AI infrastructure provider.
• It is critical to monitor future capital expenditure levels, which are set to hit $35 billion by FY26, and scrutinize subsequent earnings reports for clear metrics on the profitability and return on investment from these AI workloads.
• Consider that the stock's valuation is now being benchmarked on a premium forward EV/Sales multiple, which requires sustained, high-velocity growth in the OCI business to be justified.
• Future announcements of major AI client acquisitions should be treated as a key leading indicator of continued market share gains and validation of Oracle's competitive strategy in AI compute.