Oracle: Jefferies hikes PT on upbeat earnings, accelerating cloud momentum

Jefferies raised its price target on Oracle to $220 from $200, maintaining a "Buy" rating, based on strong forward guidance and accelerating cloud momentum, particularly in infrastructure services. Oracle's remaining performance obligations grew 41% year-over-year, and the company projects revenue growth of 16% in fiscal year 2026, reaching $67 billion, with further acceleration expected in FY27 driven by IaaS growth projected to exceed 70% in FY26. While Q4 results were mixed, Jefferies sees potential for valuation multiple expansion as cloud momentum translates into revenue.

Analysis

Jefferies has upgraded its price target for Oracle Corporation (ORCL) to $220 from $200, maintaining a "Buy" rating and citing a potential 25% upside, driven by robust forward guidance and accelerating cloud momentum, particularly within its infrastructure services. A key indicator of this strength is Oracle's remaining performance obligations (RPO), which surged 41% year-over-year and are anticipated to more than double by fiscal 2026. Jefferies highlights Oracle's projection of $67 billion in revenue for fiscal 2026, representing 16% growth, with a further 20% increase forecasted for fiscal 2027. This growth is significantly propelled by the cloud segment, with infrastructure-as-a-service (IaaS) growth expected to accelerate to over 70% in FY26, up from 51% in FY25, and total cloud revenue projected to grow by more than 40%. Notably, Jefferies believes Oracle can achieve these targets even without immediate contributions from its upcoming Stargate AI initiative, underscoring the durable demand for both AI and non-AI workloads. While Oracle's fourth-quarter results presented a mixed picture, with slightly weaker IaaS growth and lower-than-expected cash flow, Jefferies views the strong backlog trends and increased capital expenditures as indicative of aggressive scaling to meet burgeoning demand, suggesting potential for Oracle's valuation multiple to expand as cloud momentum materializes into revenue.

Key Decisions for Investors

• Investors should evaluate Oracle's compelling cloud growth narrative, underscored by a 41% year-over-year increase in remaining performance obligations and projected IaaS growth exceeding 70% in FY26, which supports Jefferies' "Buy" rating and $220 price target.
• Consideration should be given to the potential for valuation multiple expansion as Oracle translates its strong cloud momentum and backlog, expected to drive 16% revenue growth in FY26, into realized earnings.
• Investors should closely monitor Oracle's execution in converting its RPO and cloud demand into consistent revenue and cash flow improvements, especially given the mixed signals from the recent fourth-quarter results regarding IaaS growth and cash flow.