The company faces challenges from project delays and dependence on OpenAI but remains a buy for long-term investors
Category: Business
Oracle Corporation (NYSE: ORCL) is witnessing renewed investor interest after a turbulent September, with shares attempting to rebound from a recent sell-off that had left them at attractive valuation levels. Analysts have rated Oracle a "Buy" with a price target of $211, indicating a potential upside of over 51% from its current trading price of around $138.98.
This optimism is underpinned by Oracle's substantial growth in cloud infrastructure, which saw a remarkable 121% increase in revenue. The company has a backlog of $664 billion in remaining performance obligations (RPO), which reflects contracted revenue not yet recognized. This backlog is expected to convert into revenue over the next three years, providing a strong foundation for future growth.
Oracle's recent fiscal first-quarter results, reported on September 10, showed adjusted earnings per share (EPS) of $1.92, exceeding the consensus estimate of $1.7391. Revenue for the quarter was $19.345 billion, a year-over-year increase of 29.61%. Following these results, management raised fiscal 2027 EPS guidance to $8.10, reinforcing confidence in the company's growth prospects.
Notably, Oracle's stock had faced volatility following OpenAI's cancellation of the planned release of its GPT-6.1 Astra artificial intelligence model. This cancellation raised concerns among investors, as Oracle has tied a substantial part of its AI infrastructure growth to OpenAI. The decision was made due to safety and alignment issues, as reported during OpenAI's annual developer conference, OpenAI DevDay 2026, held on September 29 in San Francisco.
Paul Meeks, head of technology research at Freedom Capital Markets, highlighted that approximately half of Oracle's RPO is linked to OpenAI, indicating that any setbacks at the AI company could significantly impact Oracle's ability to convert its AI backlog into revenue. Nevertheless, Meeks noted that the cancellation of one model does not necessarily imply a reduction in OpenAI's broader computing needs.
In addition to challenges posed by OpenAI's recent developments, Oracle is also grappling with execution risks associated with its ambitious Project Jupiter, a large data center initiative in New Mexico. On September 24, Oracle invoked a force majeure provision related to this project, citing potential delays in securing power. The company has stated that Project Jupiter remains on schedule for its planned launch in 2028, but the invocation of force majeure reflects the growing complexity of rapidly scaling data center capacity.
Oracle's aggressive capital expenditures, estimated between $90 billion and $95 billion, alongside a reported negative free cash flow of $5 billion, raise concerns about the company’s financial health. The debt-to-equity ratio stands at 2.53 times, indicating that Oracle's debt exceeds shareholders' equity, which could pose risks if spending on AI infrastructure slows.
On the other hand, Oracle's cloud infrastructure revenue has been a bright spot, with quarterly cloud revenue reported at $11.6 billion, up 62% from the previous year. This growth is complemented by a substantial 184% year-over-year increase in cash from operations, reaching $23 billion during the quarter.
As institutional investors reassess Oracle's long-term potential, confidence is bolstered by customer prepayments and partnerships with major hyperscalers, which have helped alleviate concerns surrounding solvency and margin pressures. The recent upward revisions to full-year guidance, driven by strong enterprise AI deployments and high utilization of newly delivered cloud capacity, have contributed to a more favorable outlook for the company.
Looking ahead, Oracle's ability to convert its massive backlog into sustainable revenue will be closely monitored by investors. The company’s reliance on OpenAI and its success in executing large-scale projects like Project Jupiter are key factors that will determine its future performance. As of now, Oracle's stock is testing the $140 level after a recent recovery, but it is uncertain whether renewed optimism can outweigh the challenges posed by heavy infrastructure spending and potential delays.
Analysts continue to express a bullish sentiment toward Oracle, with many viewing it as a solid investment for the next 18 to 24 months. The stock is currently trading at a valuation multiple of 17 to 18 times forward earnings, significantly lower than its competitors, Microsoft and Amazon, which trade at 25 and 24 times, respectively. This valuation gap suggests that Oracle may have room for growth as it continues to navigate the competitive cloud market.
In the aftermath of these developments, Oracle's next earnings call will be closely watched, as it will provide insight into the company’s progress in addressing its challenges and capitalizing on its growth opportunities. Investors are particularly interested in updates related to Project Jupiter and any changes in the relationship with OpenAI, especially after recent market fluctuations.
As Oracle continues to evolve, its commitment to building a strong AI infrastructure and delivering measurable returns to its customers will be fundamental to its long-term success. The company’s ability to adapt to the rapidly changing technological environment will be a defining factor in its future growth.