TD Cowen reiterates Buy rating on Oracle stock ahead of earnings

TD Cowen reiterated its Buy rating and $325 price target for Oracle (ORCL) ahead of its Q1 earnings, anticipating 10% constant currency growth and robust demand for Oracle Cloud Infrastructure (OCI), which they believe is currently "under-appreciated" by the market. The firm projects Cloud growth to accelerate to 40% in FY2026, driven by Stargate capacity and accelerating Fusion migrations, supporting Oracle's target of over $275 billion in RPO for FY2026. This positive outlook, despite Oracle shares already gaining 30% since Q4 earnings and trading at high valuations, is reinforced by recent strategic developments, including a $38 billion debt package for data centers and new enterprise implementations.

Analysis

Oracle is heading into its September 9th first-quarter earnings with significant bullish sentiment, primarily driven by expectations for accelerating cloud growth. TD Cowen anticipates 10% constant currency revenue growth and projects cloud segment growth to increase from 27% last quarter to 29% in Q1, with a long-term forecast of 40% for fiscal year 2026. This outlook is supported by strong demand for Oracle Cloud Infrastructure (OCI) and accelerating Fusion migrations, with analysts noting the company's FY2026 potential remains "under-appreciated." This growth narrative is further substantiated by a new $38 billion debt package to fund data center expansion and a significant new contract with NYC Health + Hospitals. However, this optimism is set against a rich valuation. The stock has already gained 30% since its last earnings report and 65.9% over the past year, trading at a P/E ratio of 52.29, which is significantly above industry averages and potentially above its fair value according to InvestingPro data. While multiple analysts have raised price targets, Morgan Stanley's 'Equalweight' rating provides a cautious counterpoint to more bullish views.

Key Decisions for Investors

• Given the strong analyst conviction and tangible growth drivers like the $38 billion data center funding, investors may view the upcoming earnings as a potential catalyst, provided management confirms the aggressive cloud growth outlook.
• Investors should be cautious of the stock's premium valuation and recent 30% price surge, as high expectations are already priced in, creating a risk of a sharp correction if earnings or guidance disappoint.
• Focus critically on the Q1 cloud growth rate and management's commentary on the path to its fiscal 2026 target of over $275 billion in RPO, as these metrics will serve as the primary justification for the stock's current multiple.
• Consider the divergence in analyst ratings, particularly Morgan Stanley's 'Equalweight' stance, as a signal to weigh the compelling OCI growth story against potential execution risks and the elevated share price before increasing a position.