After Earnings, Is Oracle Stock a Buy, a Sell, or Fairly Valued?

Oracle __ released its fiscal fourth-quarter earnings report on June 10. Here’s Morningstar’s take on Oracle’s earnings and stock.

Key Morningstar Metrics for Oracle Stock

• Fair Value Estimate

  : $207.00

• Morningstar Rating

  : ★★★

• Morningstar Economic Moat Rating

  : Narrow

• Morningstar Uncertainty Rating

  : Very High

What We Thought of Oracle’s Fiscal Q4 Earnings

Oracle reported in-line fourth-quarter results, with total revenue up 21% to $19 billion and cloud revenue up 47% to nearly $10 billion. The company delivered more than 1.2 gigawatts of data center capacity in fiscal 2026, underpinning cloud infrastructure’s 77% year-over-year growth.

Why it matters: Strong market demand and solid data center ramp-up are exactly what Oracle needs to reach its long-term revenue goals. In addition to deploying $56 billion in capital expenditure in fiscal 2026, Oracle expects to increase total capital expenditure to $90 billion-$95 billion in fiscal 2027.

• In the fourth quarter, Oracle’s global GPU utilization rate stood at 97.5%. 92% of the GPUs received contract renewals with their original customers, while the remaining 8% secured new customers within 90 days. Healthy market dynamics support Oracle to double down on its infrastructure investments.
• Oracle’s biggest data center projects are on or ahead of their ramp-up schedules. Contracted data centers generally begin to deliver service within 18 months, consistent with the industry standard. The Bloom Energy BE partnership effectively alleviates power supply as a near-term bottleneck.

The bottom line: We trim our fair value estimate for narrow-moat Oracle to $207 from $220, primarily due to higher-than-expected capital expenditure forecasts, which have compressed the firm’s free cash flows. Shares look moderately undervalued following the 11% postearnings selloff.

• We are of two minds about Oracle’s expanding capital expenditure. The $90 billion-$95 billion investment in fiscal 2027 should bring nearly 3 GW of new GPU cloud capacity online, translating to over $30 billion in recurring revenue once fully ramped up.
• On the other hand, with $20 billion-$25 billion in customer prepayments and $40 billion in new debt and equity issuance, the remaining $30 billion in capital outlay will consume most of Oracle’s operating cash flow, pushing its balance sheet to its limit.

Fair Value Estimate for Oracle Stock

With its 3-star rating, we believe Oracle’s stock is fairly valued compared with our long-term fair value estimate of $207 per share, which implies a fiscal 2027 enterprise value/sales multiple of 8 times and an adjusted price/earnings multiple of 26 times. Following a period of rapid growth, Oracle’s forward adjusted price/earnings should gradually step down to 15 times by fiscal 2030. We expect Oracle’s annual revenue growth to accelerate to an average of 31% over the next five years as the adoption of Oracle Cloud Infrastructure, or OCI, and Oracle Cloud Applications, or OCA, continues to tick up.

The ramp-up of AI data centers is a major driver of Oracle’s top-line growth. Cloud should become Oracle’s key growth driver and account for around 85% of the company’s revenue by fiscal 2030. Meanwhile, we expect a five-year CAGR of 62% for OCI and 8% for OCA. Total cloud revenue (OCI plus OCA) is expected to grow around tenfold over the next eight years.

We acknowledge the high degree of uncertainty baked into our forecast, including long-term demand from key customers like OpenAI and Oracle’s ability to secure the necessary resources for its data center build-out. Our fair value depends on AI demand remaining healthy relative to supply, allowing Oracle to pursue its data center build-outs and operate its data centers at full capacity.

Read more about Oracle’s fair value estimate.

Economic Moat Rating

We think Oracle has a narrow economic moat, supported by high switching costs. Database systems and other enterprise software that Oracle sells are critical to the day-to-day operation of modern enterprises. These features should keep Oracle’s return on invested capital above its cost of capital over the next 10 years, as it’s a key player in these areas.

We forecast a single-digit enterprise cloud market share for Oracle by 2027. Oracle Cloud Infrastructure’s rapid near-term growth should dramatically decrease its unit cost due to economies of scale. We don’t see cost advantage becoming a moat source because there is no clear evidence of it possessing a unique process power that can ramp up its data center capacity at a systematically lower cost than its competitors.

Read more about Oracle’s economic moat.

Financial Strength

We model a continuous increase in Oracle’s capital expenditure as OCI’s scale catches up with other leading hyperscalers. Currently, we expect Oracle’s total capital expenditure to surpass $100 billion by fiscal 2028 and reach $150 billion by fiscal 2030. While we hope management can disclose more about the long-term financing details of its ambitious data center buildout, we model over $250 billion of liquidity that comes in different forms, including debt, equity, leases, between fiscal 2026 and 2031.

We don’t think refinancing risk would become a major concern for Oracle, as the company has said it’s committed to an investment-grade credit rating. We expect a continued improvement of Oracle’s debt/adjusted EBITDA ratio regardless of its heavy investment in cloud infrastructure, eventually reaching below 2 times by fiscal year 2030.

Read more about Oracle’s financial strength.

Risk and Uncertainty

We give Oracle a Very High Uncertainty Rating due to the wide range of potential outcomes regarding genuine long-term demand for AI cloud infrastructure and, to a lesser extent, intensified competition among database products.

We think the plethora of new databases is another major risk for Oracle. Unit prices of data storage processing have been decreasing over the past few years. The strong market demand has led to many new data products. However, we believe Oracle’s cloud database is sufficient to serve its core customers who prioritize stability and security. Their adoption of cloud solutions should continue to support Oracle’s top-line growth.

Read more about Oracle’s risk and uncertainty.

ORCL Bulls Say

• Scaling of Oracle Cloud Infrastructure has helped retain customers, port workloads to the cloud, and create new cloud service revenue, all of which should continue in the coming years.
• Oracle Database should be able to keep its market leadership as customers continue to depend on its stability and security.
• Oracle Cloud Infrastructure was built with flexibility and ease of use in mind, which could bring a significant base of first-time Oracle users to the company, strengthening top-line results.

ORCL Bears Say

• Demand for generative AI can undershoot expectations, potentially causing Oracle to miss its long-term revenue and earnings goals.
• Oracle needs to overcome multiple supply chain challenges to deliver the contracted data center capacity. Delays in the supply chain can negatively affect Oracle’s revenue growth.
• Oracle’s balance sheet is among the most leveraged within our software coverage, which could limit operational flexibility and future acquisition opportunities.

This article was compiled by Irza Waraich.