11 December 2025 | 5:01AM PST Equity Research Oracle Corp. (ORCL) Cloud Momentum Balanced Against Capital Structure and Concentration Risks ORCL 12m Price Target: $220.00 Price: $223.01 Downside: 1.3% We reiterate our Neutral rating and lower our Price Target to $220 on Oracle following F2Q results that saw Total Revenue -0.8% below Consensus, Cloud growth +33% CC (vs. Guidance +34%), GM -100 bps below, Op. Income -1.3% below, CapEx +44% above and FCF burn ~2x higher vs. Consensus. Oracle's stock had round- ...

Core Insights - Oracle Corporation reported a strong performance in Q2 of FY2026, with Remaining Performance Obligations (RPO) reaching $52.33 billion, a 433% year-over-year increase, driven by large contracts with companies like Meta and Nvidia [2][5][6] - Total cloud revenue reached $8 billion, growing by 33%, with Cloud Infrastructure (OCI) being the main growth driver, increasing by 66% to $4.1 billion, and GPU-related revenue surging by 177% [2][5][6] - The company is confident in executing its business backlog and maintaining an investment-grade debt rating, with capital expenditures expected to increase by approximately $15 billion to support accelerated business growth [2][5][9] Financial Performance Review and Outlook - The company reported a total revenue of $16.1 billion, a 13% increase year-over-year, with operating profit rising by 8% to $6.7 billion [6][8] - Non-GAAP earnings per share were $2.26, up 51%, while GAAP earnings per share were $2.10, reflecting an 86% increase [6][8] - The company anticipates that IPOs will account for 40% of revenue in the next 12 months, up from 25% in the previous year [5][6] Cloud Infrastructure (OCI) Growth - OCI's revenue growth accelerated by 66%, with significant demand for AI infrastructure, including the deployment of Nvidia GPUs [10][12] - The company operates 147 customer-facing real-time regions and plans to add 64 more, with a focus on delivering high-capacity data centers [10][12] - OCI's market consumption grew by 80%, supported by partnerships with companies like Broadcom and Palo Alto [13][15] AI Data Platform and Application Strategy - Oracle has developed the Oracle AI database and AI data platform to enable multi-step reasoning on private enterprise data while ensuring data privacy and security [16][17] - The AI data platform integrates various AI models, allowing for comprehensive data access and analysis across different databases and applications [17][18] - The company is focused on leveraging AI to enhance its applications, with significant growth in sectors like healthcare, where AI-driven solutions are being implemented [20][21] Application Business Performance and Sales Synergy - Total application revenue grew by 11%, with strong performance in core applications like Fusion ERP, SCM, and HCM, which saw growth rates of 17%, 18%, and 14% respectively [19][21] - The integration of industry application sales with core application sales teams has led to increased strategic conversations and larger transactions [21][22] - The company has successfully migrated 330 customers to the cloud, demonstrating robust demand for its application solutions [25][26]

Financial Data and Key Metrics Changes - Remaining performance obligations (RPO) ended at $523.3 billion, up 433% year over year, with a $68 billion increase since August [5] - Total cloud revenue was $8 billion, up 33%, with cloud revenue now accounting for half of Oracle's overall revenue [5] - Total revenues for the quarter were $16.1 billion, up 13%, higher than the 9% growth reported in Q2 last year [6] - Non-GAAP EPS was $2.26, up 51%, while GAAP EPS was $2.10, up 86% [6] - Operating cash flow was $2.1 billion, while free cash flow was negative $10 billion due to $12 billion in CapEx [7] Business Line Data and Key Metrics Changes - Cloud infrastructure revenue was $4.1 billion, up 66%, with GPU-related revenue growing 177% [5] - Cloud applications revenue was $3.9 billion, up 11%, with strategic back office applications revenue at $2.4 billion, up 16% [6] - Multi-cloud consumption increased by 817% year over year [15] Market Data and Key Metrics Changes - Oracle's cloud infrastructure business continues to grow faster than competitors, with significant demand for AI infrastructure [11] - The company operates 147 live customer-facing regions with 64 more planned, indicating strong market expansion [11] Company Strategy and Development Direction - The company is focused on maintaining investment-grade debt rating while exploring various funding options for growth [8] - Oracle aims to synchronize payments with receipts to minimize borrowing needs, emphasizing a strategic approach to capital expenditures [8] - The integration of AI into database and application services is a key strategy, with a focus on delivering enterprise-grade AI solutions [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the healthy customer backlog and operational strength to execute future growth [9] - The company expects $4 billion of additional revenue in FY27 due to added RPO from Q2 [9] - Guidance for Q3 includes total cloud revenue growth expected between 37%-41% in constant currency [10] Other Important Information - The company recognized a pre-tax gain of $2.7 billion from the sale of its interest in Ampere [6] - The launch of new AI models and partnerships is expected to enhance customer experience and drive OCI consumption [15] Q&A Session Summary Question: How much money does Oracle need to raise to fund its AI growth plans? - Management indicated that they expect to need less than the $100 billion anticipated by analysts, thanks to various funding models that minimize upfront capital expenditures [36][39] Question: How long will it take for AI margins across OCI data centers to ramp up? - Management stated that the time to ramp up margins is a couple of months, depending on the mix of data centers and the speed of capacity delivery [42][44] Question: How is Oracle thinking about selling additional platform services? - Management highlighted the importance of making the Oracle database available across multiple clouds and integrating AI capabilities to enhance data value [47][49] Question: What would be required to convert a data center from one customer to another? - Management explained that the process of reallocating capacity between customers is efficient, taking only hours due to the technology and demand in place [55][56] Question: Why is there confidence in the applications business despite industry trends? - Management attributed confidence to the unique position of Oracle in offering complete application suites with integrated AI, leading to significant growth in industry applications [66][70]

Summary of Oracle Corp. (ORCL) Conference Call Company Overview - **Company**: Oracle Corp. (ORCL) - **Market Cap**: $895.6 billion - **Enterprise Value**: $991.7 billion - **Industry**: Americas Software Key Financial Results and Projections - **F2Q26 Results**: Revenue decreased by 1% and Gross Profit decreased by 3% compared to consensus expectations - **Operating Margin**: Increased by 60 basis points - **Free Cash Flow (FCF)**: Decreased by 123% compared to consensus, with Capital Expenditures (CapEx) 62% higher than expected - **Revised OCI Revenue Projections**: - F27E: $32 billion - F28E: $73 billion - F29E: $114 billion - F30E: $144 billion - **Revised IaaS Revenue Projections**: - F26E: $18 billion - F27E: $32 billion - F28E: $55 billion - F29E: $94 billion - **RPO Growth**: Increased by 359% YoY to $455 billion, indicating a significant growth potential for the company [1][2][16] Long-term Financial Targets - **FY26 Revenue Target**: $67 billion with >10% annual EPS growth - **FY29 Revenue Target**: >$104 billion with >20% annual EPS growth - **Execution and Path Clarity**: Continued execution is necessary to achieve these targets [2][16] Investment Thesis - **Strengths**: - Long-standing presence in the software market - Scaled businesses across all technology layers - Strong traction in IaaS market with notable customer wins (Uber, TikTok, Zoom) - **Concerns**: - Early-stage build-out of compute capacity raises questions on funding for capital needs - Potential pressures on EPS growth due to GM pressures and limited operating leverage - Lack of visibility into revenue contributions from AI initiatives [2][16][17] Valuation Metrics - **P/E Ratios**: - FY26E: 45.5 - FY27E: 38.1 - FY28E: 30.5 - **Free Cash Flow Yield**: Negative in the near term due to elevated CapEx [4][9] Market Position and Competitive Landscape - **IaaS Market Position**: Currently ranked 4 behind AWS, Azure, and GCP, but showing strong growth potential - **ERP Market Leadership**: Expected to maintain leadership through dual offerings for SMB and enterprise customers [16][17] Risks and Considerations - **CapEx Investment Cycle**: Investors are cautious about the impact of CapEx on overall growth trajectory - **Revenue Contribution from AI**: Uncertainty regarding the revenue impact from AI initiatives, particularly in inferencing [16][17] Conclusion - **Rating**: Neutral with a price target of $310, reflecting a cautious outlook on Oracle's ability to sustain growth amidst significant CapEx and evolving market dynamics [1][2][16]

Core Insights - Oracle's NetSuite Cloud ERP is a significant growth driver for its cloud strategy, with Q4 FY25 revenues increasing 18% year-over-year to $1.0 billion, highlighting its importance in Oracle's SaaS portfolio [1][9] - The transition to cloud-based, AI-driven ERP solutions is a major growth engine for Oracle, as traditional on-premises systems cannot leverage advanced AI features, leading businesses to adopt NetSuite or Fusion ERP for improved automation and efficiency [2] - Oracle's cloud revenues are projected to grow 29% year-over-year to $31.6 billion in fiscal 2026, supported by strong infrastructure services and a healthy pipeline indicated by a projected doubling of its RPO [3] Future Projections - Oracle anticipates cloud revenues to increase over 40% in fiscal 2026, with infrastructure revenue expected to rise by 70%, driven by AI innovation and global data center expansion [4] - The company is positioned for consistent double-digit SaaS growth, reinforcing its leadership in the enterprise cloud market [4] Competitive Landscape - Microsoft Dynamics 365 is a strong competitor, known for its integration with the Microsoft ecosystem, offering versatility, customization, and cost advantages over Oracle [5] - SAP SE holds a leadership position in the ERP market with a 17% share, focusing on cloud and AI to accelerate growth, supported by a robust global support network and industry-specific solutions [6] Financial Performance - Oracle's shares have appreciated 33.8% year-to-date, outperforming the Zacks Computer and Technology sector and the Zacks Computer - Software industry [7] - The Zacks Consensus Estimate for Oracle's fiscal 2026 revenues is $66.60 billion, indicating a 19.38% year-over-year growth, with earnings projected at $6.73 per share, reflecting an 11.61% increase from fiscal 2025 [13]

Core Insights - Oracle is aggressively expanding its cloud services, with total cloud revenues increasing by 27% year-over-year in Q4 and projected to grow over 40% in fiscal 2026, driven by infrastructure expansion and demand for AI workloads [1][9] Group 1: Cloud Revenue Growth - Total cloud revenues climbed 27% year-over-year in Q4, contributing to a 24% annual increase in fiscal 2025 [1][9] - Management projects cloud revenue growth of over 40% in fiscal 2026, fueled by aggressive infrastructure expansion and strategic multi-cloud alliances [1][9] Group 2: Multi-Cloud Strategy - Oracle operates 23 data centers and plans to add 47 more within a year, enhancing its multi-cloud capabilities [2] - Integration with Amazon AWS, Microsoft Azure, and Google Cloud allows enterprises to run Oracle Database services across multiple environments, resulting in a 115% sequential increase in multi-cloud database revenues in Q4 [2] Group 3: Cloud Application Portfolio - Oracle's cloud application portfolio, including Fusion ERP and NetSuite, continues to drive double-digit growth [3] - The company is embedding AI across its cloud stack to meet enterprise demand for AI-ready infrastructure [3] Group 4: Remaining Performance Obligations (RPO) - Oracle's Remaining Performance Obligations (RPO) increased by 41% to $138 billion, with nearly 80% tied to cloud services and one-third expected to convert within the next year [4] Group 5: Competitive Landscape - Amazon Web Services (AWS) holds a dominant position in the cloud market with a 31-32% global share, supported by over $100 billion in annual data center investment [5] - Google Cloud Platform (GCP) is gaining traction with a 32% year-over-year revenue growth and significant enterprise contracts, positioning it as a strong competitor to Oracle [6] Group 6: Stock Performance and Valuation - Oracle's shares have appreciated 40.4% year-to-date, outperforming the Zacks Computer and Technology sector [7] - The forward 12-month Price/Sales ratio for Oracle is 9.45x, higher than the Zacks industry average of 8.34x, indicating potential overvaluation [10] Group 7: Revenue and Earnings Estimates - The Zacks Consensus Estimate for Oracle's fiscal 2026 revenues is $66.60 billion, reflecting a 16.02% year-over-year growth [13] - The consensus estimate for fiscal 2026 earnings is $6.73 per share, suggesting an 11.61% growth over fiscal 2025 [13]

Core Viewpoint - Oracle's cloud business is experiencing significant growth, with multiple large cloud service agreements signed, including one expected to generate over $30 billion in annual revenue starting from fiscal year 2028, leading to a surge in stock price to historical highs [1] Group 1: Cloud Business Performance - Oracle's multi-cloud database revenue continues to grow at over 100% year-on-year, indicating strong market demand [1] - The company reported a strong start to fiscal year 2026, with expectations that the new agreements will not impact the fiscal year 2026 performance guidance [1] Group 2: Analyst Upgrades - Stifel analysts upgraded Oracle's rating from hold to buy and raised the target price from $180 to $250, an increase of nearly 39% [4] - The report highlights sustainable cloud business growth and operational cost management as key drivers for accelerated earnings growth in fiscal year 2027 and beyond [4] Group 3: AI and Market Position - Oracle has become a preferred third-party cloud service provider for leading AI model companies, with four out of five major AI language model manufacturers utilizing its data centers [5] - The company's cloud infrastructure has emerged as a rapid growth alternative to industry giants like Amazon, Microsoft, and Alphabet, contributing to a 60% stock price increase last year, the best performance since 1999 [5] Group 4: Financial Performance - Following a strong fourth-quarter earnings report, Oracle's stock price surpassed the record high set in December of the previous year [6] - The company's core cloud applications, particularly Fusion ERP and NetSuite, have shown significant acceleration in growth, driven by enterprises migrating to the cloud to leverage AI capabilities [8]

Group 1 - The core viewpoint of the articles is that Oracle's strong financial performance indicates a shift in the back-office supercycle from the SAP ecosystem to a broader ERP cloud market, driven by AI capabilities [1][3][5] - Morgan Stanley analysts noted that AI is becoming a significant catalyst for enterprises to upgrade their back-office systems to the cloud, as all AI functionalities are only available in cloud environments [1][3] - Oracle's Q4 FY2025 results exceeded expectations, particularly in SaaS cloud applications, with Fusion ERP growth accelerating from 18% to 22% year-over-year, and NetSuite ERP growth increasing from 17% to 18% [1][3] Group 2 - Oracle's CEO, Safra Catz, emphasized during the earnings call that the demand for AI capabilities is driving customers to migrate from on-premises products to the cloud, aligning with similar comments from SAP's CEO [3][8] - Historical context shows that SAP has been leading the back-office supercycle due to its aggressive cloud migration strategy, while Oracle's Fusion and NetSuite businesses have only recently seen similar growth acceleration [5][8] - A CIO survey by Morgan Stanley indicated that leveraging AI capabilities is a primary catalyst for CIOs to upgrade ERP platforms to the cloud, with 82% citing digital transformation and 48% mentioning AI capabilities as key drivers [5][8]

Core Viewpoint - ServiceNow and Oracle are positioned to benefit from the growing digital transformation market, which is projected to reach approximately $4 trillion by 2027, with a CAGR of 16.2% from 2022 to 2027 [1] Group 1: Company Performance - ServiceNow shares have decreased by 7.7% year to date, while Oracle shares have dropped by 10.4% due to a tech sell-off influenced by higher tariffs and a challenging macroeconomic environment [2] - ServiceNow's Yokohama release introduces new AI agents across various domains, enhancing productivity and workflow efficiency [5] - ServiceNow's customer base has expanded, with 508 customers having more than $5 million in annual contract value (ACV), representing a 20% year-over-year growth [7] - ServiceNow expects second-quarter subscription revenues to be between $3.03 billion and $3.035 billion, indicating a year-over-year increase of 19% to 19.5% [8] - Oracle anticipates total revenue growth of 9-11% year over year for the third quarter of fiscal 2025, with cloud revenues expected to grow by 24-28% at constant currency [11] Group 2: Strategic Partnerships and Innovations - ServiceNow has established partnerships with major companies like NVIDIA, Amazon, and Vodafone to enhance its AI capabilities and service management solutions [6][10] - Oracle's partnerships with companies such as OpenAI and NVIDIA are driving its cloud business momentum, particularly with the launch of AI Agent Studio [9][10] Group 3: Earnings Estimates and Valuation - The Zacks Consensus Estimate for ServiceNow's 2025 earnings is $16.48 per share, reflecting an 18.39% increase over fiscal 2024, while Oracle's estimate has declined to $6.03 per share, suggesting 8.45% growth [12] - ServiceNow has consistently beaten earnings estimates, with an average surprise of 6.61%, compared to Oracle's surprise of 0.83% [13] - In terms of valuation, Oracle shares are trading at a forward Price/Sales ratio of 6.47X, which is lower than ServiceNow's 14.62X, indicating that Oracle may be a cheaper option [14] Group 4: Market Position and Outlook - Both companies are benefiting from strong demand for digital transformation despite macroeconomic challenges and tariff concerns [17] - ServiceNow's strong portfolio and partner base are highlighted as advantages over Oracle, which faces stiff competition and security issues in the cloud computing market [17]