Analysts revamp Oracle stock forecast, with new financial model

Core Viewpoint - Oracle has positioned itself as a significant player in the AI sector through its partnership with OpenAI and the development of a new data center campus in Wisconsin, despite entering the AI space later than some competitors [1][2]. Investment and Infrastructure - The new data center campus will consist of four facilities with a power capacity nearing 1 GW, as part of a broader investment of up to 4.5 GW in Stargate capacity by Oracle and OpenAI [2]. - Construction of the campus is set to begin soon, with completion expected by 2028 [2]. Financial Analysis - Bank of America analysts have identified Oracle as the fourth AI infrastructure hyperscaler, indicating a significant transition for the company [3]. - A bottom-up financial model was created to assess the potential returns from Oracle's AI investments, yielding an initial project-level return of 9%, which could expand to 16% upon contract renewal [4][5]. - Oracle's financing strategy, primarily utilizing low-cost debt, is seen as a way to mitigate execution risks associated with these projects [5]. Contract Structure - Oracle is structuring its AI compute contracts as non-cancelable, non-modifiable, take-or-pay agreements, which are expected to provide stable cash flows and cost visibility [6]. - This approach is contrasted with other hyperscalers that are engaging in more speculative capacity building [6]. Market Outlook - Analysts have reiterated a buy rating for Oracle, setting a price target of $368, based on an estimated enterprise value-to-sales ratio of 12.4x for 2027, which is a premium compared to the large-cap software group [7].