Proactive Investors - Oracle Corp (NYSE:ORCL, ETR:ORC) shares were given further backing by analysts after it reported earnings and revealed new AI-linked partnerships with Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and OpenAI overnight.
UBS and Jefferies both issued 'buy' ratings with price targets of $160 and $150, versus Tuesday's close at $123.88. Bank of America (NYSE:BAC) reiterated its 'neutral' rating but raised its price objective to $155 from $144.
Analysts noted that Oracle's fiscal fourth-quarter results missed expectations across most metrics, but there was a focus on the company signing the largest sales contracts in its history, driven by demand for training AI large language models in the Oracle Cloud.
This led to a huge sequential backlog growth of $18 billion or 44% to $98 billion of remaining performance obligations (RPOs) and new forward guidance towards accelerated revenue growth in the new fiscal year, aiming to exceed fiscal year 2026 targets.
One investor described the announcement as "narrative > numbers", said UBS, which agreed that the "AI narrative is powerful enough to lift sentiment".
Despite mixed signals, including a 4% year-over-year growth in deferred revenue and a 21% decrease in fiscal year 2024 capital expenditures, Oracle's management remains optimistic, projecting $65 billion in revenue and a 45% operating margin by fiscal year 2026, which could drive earnings per share over $6.
Jefferies noted that Oracle was not immune to macroeconomic pressures, as both Oracle Cloud Infrastructure (OCI) and Software as a Service (SaaS) missed Street estimates.
The partnerships with Google and Microsoft were driven by AI demand, though Jefferies expressed scepticism about the long-term sustainability of these partnerships, while UBS suggested the description of the deals was confusing.
"We’re confused by how Oracle is describing the OpenAI deal, as a competing narrative is that Microsoft acquired OCI capacity on behalf of OpenAI," UBS said.
However, the database-on-Google deal is "material, it raises the chance of a similar Amazon (NASDAQ:AMZN) deal and it strengthens the database cloud migration story, which in our view isn’t fully in the stock", the UBS analysts added.
The BofA analysts said the RPO ramp suggested that Oracle boss Safra Catz (pictured) and her team executed well.
"However, with outsized growth coming from the hardware intensive OCI business, the economics in Oracle's business are likely to come down over time."
While Oracle's platform enables private clouds for many legacy Fortune 500 firms and sovereign nations, which have more stringent security requirements, BofA said it was remaining on the sidelines with its neutral rating, "given the risk of margin degradation over time".
"We are watchful of the product roadmap for other more mission critical workloads outside the core database and compute, which could offset margin pressure from a more hardware intensive business over time."