Oracle's stock has been under pressure, declining over 25% year-to-date, but Wall Street investment bank Oppenheimer believes this has created an entry point for investors. The firm upgraded Oracle's rating from "Perform" to "Outperform," setting a price target of $185, which implies a potential 27% upside.
Oppenheimer analyst Brian Schwartz stated that Oracle's price-to-earnings ratio has more than halved since last September, creating a highly favorable risk-reward profile and an attractive buying opportunity. Schwartz described Oracle as a "company with strong earnings per share compound growth," projecting that EPS could grow two to threefold by fiscal year 2030. He pointed out that risks related to counterparties in OpenAI-linked deals are easing as large-scale financing plans progress, while the cloud infrastructure business remains relatively insulated from disruptive AI impacts.
He believes the recent sell-off has not altered Oracle's fundamental investment thesis but has instead created a more attractive entry price. Compared to other software companies, Oracle's stock exhibits lower downside risk.
Concurrently, a stress test conducted by Bernstein under an extreme scenario showed that even if the AI business were to be completely written off, Oracle's stock would only face approximately 15% downside. Amid ongoing market concerns regarding customer concentration and capital expenditure risks, the stress test results provide investors with a clear valuation anchor.
Bernstein further analyzed market concerns over Oracle's substantial data center lease obligations. The most feared scenario among investors is that if customers default, Oracle could be forced to bear up to $248 billion in idle capacity costs. However, the report indicates this risk is significantly overstated.
Firstly, these lease contracts have terms of 15 to 19 years, with capacity coming online in phases until fiscal 2030. The annual maximum risk exposure is actually only $13 billion to $16.5 billion, not reaching its peak until 2030. Secondly, barring a global "AI winter," demand for data center capacity is expected to remain high, and Oracle is well-positioned to utilize idle space for its own needs or through subleasing.
More importantly, even excluding generative AI, the global IaaS/PaaS market's potential size is already $1.2 trillion to $1.4 trillion. The data center capacity consumed by traditional enterprise cloud migration alone is sufficient to absorb these leased spaces. In other words, Oracle's long-term contract structure provides a substantial buffer, and market panic over its capital commitments lacks substantive support.
Regarding hardware capital expenditure risks feared by the market, Bernstein noted the actual exposure is quite limited. The procurement cycle for servers and GPUs typically occurs 3 to 6 months before capacity goes live. If a customer cancels a contract, Oracle can flexibly cancel or postpone orders before delivery without incurring significant penalties.
Even if hardware has already been delivered, most computing assets—such as storage, networking, and memory equipment—are highly versatile and can be seamlessly repurposed for traditional SaaS and OCI businesses. The report further estimates that for every $1 of annual AI revenue, approximately $2 to $2.50 in computing assets are required, with an asset lifespan of 6 years. This implies that even in the event of customer default, only 1 to 2 years of computing expenditure is at risk. Overall, the stranded risk associated with hardware capital expenditure is significantly overestimated.
Bernstein's latest model isolates the AI business to clearly outline the standalone value of Oracle's core operations. Even if all AI data center-related revenue were excluded, the company's total revenue from traditional databases, SaaS, and OCI businesses alone could reach $101 billion by fiscal 2030.
More critically, after accounting for the interest costs on debt raised for AI infrastructure (including the recent $25 billion financing), the company's earnings per share could still reach $9.00. Applying the average P/E multiple of 27.3x seen among software peers like Microsoft, SAP, and Salesforce, this earnings expectation translates to a valuation of $137 per share. In other words, even if the AI business were entirely worthless, Oracle's core operations alone could support approximately 85% of the current stock price, demonstrating the robust cash-generating ability of its foundational business.
Bernstein concludes that Oracle's current stock price excessively discounts pessimistic expectations, and the risk-reward ratio is entering a highly attractive range. With the recent completion of approximately $25 billion in debt financing and an equivalent amount in equity financing, funding bottlenecks for data center construction have been substantially resolved. The report emphasizes that, barring an extreme scenario of a global "AI winter," the current valuation level offers investors ample safety margin and asymmetric return potential.
Comments