Right now, Oracle has an almost theatrical quality. The stock was trading close to $135 a year ago. It then rose to $346 during a period that seemed more like a tech frenzy than a software narrative. It is currently at about $163 following a significant decline. As you watch this develop, you get the impression that investors are still unsure about the type of company they are interested in: something more recent and unfamiliar, or the dusty database behemoth of the 1990s.
Hope is not the foundation of the $300 case. It is based on backlog. Oracle’s contracted future business has grown to $553 billion, which, to be honest, resembles a national budget rather than a corporate order book. A large portion of that is related to AI infrastructure, such as OpenAI’s $300 billion cloud commitment over five years. Another question is whether OpenAI itself can maintain that pace. When The Wall Street Journal expressed concerns about its internal revenue trajectory, the market was momentarily alarmed. Wedbush’s Dan Ives described the selloff as a “way overreaction,” and shortly after, on May 13, he increased his Oracle target from $225 to $275. In three weeks, it was his second bump.
Additionally, the numbers below are working. In the most recent quarter, Oracle Cloud Infrastructure revenue increased by 84% year over year to $4.88 billion. Gross margins for AI infrastructure were 32%, marginally higher than the company’s own floor of 30%. Additionally, the multicloud database business, which no one discusses at dinner parties, has gross margins of between 60% and 80%. Over time, that type of mix often has intriguing effects on a P/E ratio.
It’s difficult to ignore the strain, though. It costs money to build data centers and accumulate GPU clusters. Although Oracle’s adjusted net income margins increased from 28.4% in fiscal 2023 to 32.7% over the previous 12 months, they will still be impacted by the significant capital expenditures that lie ahead. There’s a sense that 2026 and 2027 will be the awkward years, when the revenue from all those signed contracts hasn’t fully arrived and the spending is evident in the numbers. The shape of this will be familiar to investors who experienced Amazon’s AWS buildout.
A $300 stock’s math isn’t particularly complicated. If Oracle’s adjusted earnings per share reach approximately $11 by 2028, which is conceivable considering the backlog conversion, and the multiple returns to its three-year average of 30x, you end up close to $330. You can easily surpass $250 with even a more cautious multiple. Data center hardware supply chain issues may cause delays. The market may also choose to price the future earlier than anticipated because it is still agitated. In any case, one of the more bizarre setups on Wall Street at the moment is the discrepancy between today’s $163 and what some serious analysts are modeling.
