Will Oracle's RPO Expansion Strengthen Long-Term Revenue Outlook?

Core Insights - Oracle's rapid growth in Remaining Performance Obligations (RPO) is a crucial indicator of long-term revenue sustainability amidst uneven cloud spending visibility [1] - The significant increase in backlog provides Oracle with multi-year revenue clarity, enhancing confidence in sustained growth beyond fiscal 2026 [1] RPO Growth - In Q2 fiscal 2026, Oracle reported RPO of $523 billion, more than quadrupling year over year, driven by large, long-duration cloud and AI infrastructure contracts with major clients like Meta and NVIDIA [2] - Near-term RPO, representing revenues expected to be recognized within the next 12 months, increased by 40% year over year, indicating rapid backlog monetization and reduced reliance on long-term contract execution [2][10] - A substantial portion of RPO is linked to Oracle Cloud Infrastructure (OCI), GPU-intensive AI workloads, and multicloud database deployments, which are experiencing stable demand [3] Revenue Outlook - Oracle's RPO expansion strengthens its long-term growth outlook, with projected incremental revenues of $4 billion for fiscal 2027, alongside an unchanged fiscal 2026 revenue forecast of $67 billion [4] - The Zacks model forecasts total revenue growth of 16.7% in fiscal 2026 and 15.5% in fiscal 2027, reflecting optimism regarding Oracle's backlog strength translating into measurable revenue growth [4] Competitive Landscape - Oracle's cloud and AI infrastructure business competes directly with major players like Alphabet and Microsoft for large-scale enterprise and AI-driven contracts [5] - Alphabet's cloud backlog reached $155 billion in Q3 2025, benefiting from strong growth in AI infrastructure and customer adoption of AI tools [6] - Microsoft reported a 40% year-over-year growth in Azure and other cloud services, with its commercial remaining performance obligations expanding by 51% to $392 billion, indicating strong multi-year demand visibility [7] Stock Performance and Valuation - Oracle's shares have declined by 19.8% in the past six months, underperforming the Zacks Computer and Technology sector's growth of 18.9% [8] - The stock is currently trading at a forward 12-month Price/Earnings ratio of 24.63x, lower than the industry average of 27.76x, and carries a Value Score of D [11] - The Zacks Consensus Estimate for Oracle's fiscal 2026 earnings is $7.38 per share, reflecting a 22.39% growth over fiscal 2025 [14]