Oracle hits all-time high as analysts cheer AI-driven growth outlook

Oracle shares jumped 14% to a record high of $201.72 after reporting strong Q4 revenue growth of 11% and projecting a 100% increase in remaining performance obligations (RPO) to over $275 billion, signaling robust demand for its cloud offerings. Analysts at UBS and Jefferies highlighted the "extraordinary" backlog and bullish FY26 revenue growth guidance of 16%, driven by expected IaaS revenue growth exceeding 70%. While both firms acknowledged concerns over margin pressure and increased capital expenditures (projected at $25 billion for FY26), they maintain Buy ratings, citing that the growth acceleration and the OpenAI relationship justify the valuation with price targets of $225 (UBS) and $220 (Jefferies).

Analysis

Oracle Corp. (ORCL) shares experienced a significant rally, surging over 14% to a record high of $201.72, driven by an optimistic outlook fueled by accelerating cloud growth and a substantial increase in its deal backlog. The company reported an 11% revenue growth for the fourth quarter, an improvement from the 8% recorded in the previous quarter, and notably revised its full-year 2026 revenue growth guidance upwards to 16%. A key highlight was the projection of a 100% increase in remaining performance obligations (RPO), reaching over $275 billion, a figure described by UBS as "extraordinary" and potentially exceeding Microsoft's backlog dollar growth. This surge in backlog, particularly in Oracle Cloud Infrastructure (OCI), underpins analyst confidence, with Jefferies noting it signals "Cloud upside in FY26." Oracle's infrastructure-as-a-service (IaaS) revenue is anticipated to grow by over 70% in FY26, a substantial increase from 51% in the prior year, while total cloud revenue is guided to rise by more than 40%. Despite these strong growth indicators, concerns persist regarding rising capital expenditures and margin pressure. FY25 capex reached $21.2 billion, exceeding prior guidance by over $5 billion, and is expected to climb to $25 billion in FY26. UBS consequently reduced its operating margin estimate by approximately 100 basis points. Nevertheless, analysts at both UBS and Jefferies maintain Buy ratings, with price targets of $225 and $220 respectively, asserting that the robust backlog, positive long-term guidance, and the burgeoning OpenAI relationship justify the stock's current valuation, even with a CY26 GAAP EPS multiple of 32x, which they believe could expand further as backlog converts to revenue.

Key Decisions for Investors

• Investors should acknowledge Oracle's compelling cloud growth trajectory and record backlog as strong positive signals, though these are counterbalanced by significant capital expenditure increases and potential near-term margin compression.
• Monitor closely the conversion rate of the $275 billion RPO into recognized revenue and the company's ability to manage escalating capex to assess if the projected growth materializes profitably.
• Given the stock's re-rating to a 32x CY26 GAAP EPS multiple and analyst expectations for further expansion, consider the balance between the high growth outlook, particularly in AI-driven cloud services, and the execution risks associated with the aggressive infrastructure buildout and its impact on free cash flow.