Guggenheim Reiterates Buy Rating on Oracle (June 5)
Guggenheim analyst John DiFucci reiterated a Buy rating and $400.00 price target on Oracle (NYSE: ORCL).
“It’s been a volatile 9-month period for ORCL’s stock, but several positive developments have materialized in recent months, namely the $45-$50B debt/equity raise and OpenAI’s $120B funding round, which should help assuage investor concerns around the data center build-out.
IaaS revenue and FY27 capex guidance are the biggest investor questions heading into the print, and we believe the setup for F4Q IaaS revenue is reasonable (it requires a similar amount of New IaaS ARR coming online as the past two quarters which gives us confidence in ORCL’s ability to do so), while we believe capex guidance should come in around $75B—at least that’s what it could be without BYOC considerations that we’re not privy to.
Elevated capex the next two years (we’re modeling $85B in FY28) would lead to significantly negative free cash flow with FY27 being the trough before turning into a cash flow waterfall in FY29 based on ORCL’s RPO of $553B.
We continue to see potential risk to consensus Cloud gross margin due to IaaS mix and depreciation ramp, but less risk to operating margin given operating expense efficiencies.
On RPO, we believe expansion with blue-chip customers would be more positively received by investors and credit rating agencies than additional model training company backlog.
That said, we do not expect a change to long-term targets, even with the potential for incremental deals signed in the quarter and a newly appointed CFO.
Lastly, our partner checks indicate a strong close to FY26, with the largest partner exceeding expectations, and three others meeting expectations.
Strength was attributed to Middle East outperformance, Industry Solution momentum, and Cloud Database traction.
Buy rated ORCL continues to be our Best Idea, which we view as a “Decade Stock” based on superior technology and execution. We maintain our Price Target of $400.
ORCL will report F4Q earnings on 6/10 post-close.”
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