By Jacob Sonenshine
Oracle has been on a rough ride. Shares of the software provider trade 52% below the record high they hit in late September.
But in its latest earnings report, the Austin, Texas--based company, which has a market value of $440 billion, showed there is light at the end of the tunnel. And no, it isn't an oncoming train. The stock looks cheap -- too cheap.
Oracle not only has a legacy business that can survive artificial intelligence, but the company is integral to the AI revolution. As a core supplier to the pioneering AI application developers -- ChatGPT's OpenAI and Claude's Anthropic, among others -- Oracle can sustain high sales growth, put its large capital expenditures behind it, and grow earnings aggressively. That scenario would send the stock soaring from here. It isn't unreasonable to expect returns of over 50% by the end of this year.
To be sure, the tunnel Oracle finds itself in has been dark. From peak to bottom, the stock has seen its largest six-month decline since 2002.
The initial concern centered on its deal with OpenAI, first reported in September. Oracle's agreement to provide $300 billion of computing power through 2031 looked ambitious, as OpenAI would need to raise enough money to finance all of the purchases in the agreement. This issue metastasized into something greater for Oracle: The market realized that returns for stockholders could shrink if the OpenAI deal doesn't fully bear fruit, or if any other part of the business suffers.
The issue is especially worrisome as Oracle grows capital expenditures to an expected $57 billion this year, partly financed with what is now $135 billion in total debt. Management also has an equity financing program in which it can issue shares at market prices, raising concerns about share dilution.
Broader fears about AI replacing software also contributed to Oracle's share price decline. But if these privately owned AI innovators continue to thrive, they'll need to lean on Oracle, Microsoft, and Amazon.com for computing power.
Oracle's fiscal-third-quarter earnings, released earlier this month, show this starting to play out. Sales beat analyst forecasts across all segments to total $17.2 billion, growing 22% year over year, an acceleration from the previous quarter's 14%. Driving the growth was cloud infrastructure revenue, which rose 84% to $4.9 billion.
So far, there's no indication the company is experiencing disruption from the "SaaS-pocalypse" -- referring to "software as a service" -- or the fear that AI tools will take market share from software providers, even as Oracle's engineers themselves adopt AI tools. Co-CEO Michael Sicilia said on the earnings call that Oracle is embedding AI features into its products, making customers' businesses more efficient.
Cantor Fitzgerald analysts buy that argument. "Oracle appears to be taking a more disruptive approach to deploying AI agents across its applications," writes Cantor analyst Thomas Blakey, who applauded Sicilia's comment and highlighted Oracle's recent customer wins across the healthcare, finance, and industrial sectors. Oppenheimer is on board as well.
The revenue picture helped Oracle beat earnings-per-share expectations. When it came to profits and cash flow, management didn't increase its planned spending for capex or borrowings, and said it hasn't even needed to use its equity financing program, highlighting that Oracle's sales and profit growth can ultimately make its financing burden look smaller.
That sales growth picture looks strong for the long term. Revenue from OpenAI should start trickling in during 2027. OpenAI announced $110 billion in equity financing in February, helping "alleviate concerns around creditworthiness and contract serviceability," writes Mizuho analyst Siti Panigrahi.
The next question: What does long-term profit look like? Analysts expect sales to grow 35% annually through 2029 to $207 billion, which is likely high enough to spur fast profit growth. The actual growth rate depends on a tricky margin situation.
Management said on the call that the faster-growing part of its cloud business carries roughly 35% gross margins at the midpoint of the range, lower than the overall company's high 60s. D.A. Davidson analyst Gil Luria thinks Oracle's computing business currently has an operating margin in the teens, given that the company is far more efficient than cloud computing company CoreWeave, which has a 2026 operating margin of 8%. He and Oracle see it rising as costs like depreciation and restructuring moderate. For now, the lower computing business margins explain why analysts forecast annual earnings-per-share growth at 28%, rather than something above top-line growth.
This scenario includes Oracle turning in $29.1 billion of free cash flow by 2029. Last quarter's better-than-expected profit picture indicates the company could run ahead of schedule.
Right now, Oracle has nearly $40 billion of cash, and analysts expect cumulative cash burn of almost $75 billion from 2025 through 2028. That's more manageable than it might seem: Even if Oracle borrows an additional $35 billion to cover that shortfall, its total debt will likely decline as it pays off older borrowings. In other words, the debt load has likely peaked.
Oracle currently trades at just under 20 times expected EPS for the coming 12 months, below the S&P 500 index's 21 times. In the AI era, which began in late 2022, Oracle has often traded at a premium, given its expected growth; it peaked at 45 times in the fall. Even if it doesn't approach those levels again, a multiple above the S&P 500 would boost the stock -- and that's even before earnings growth pushes shares higher.
If the stock trades at 25 times earnings, a conservative estimate at the lower end of the recent range, it would land at $240 by the end of the year. That implies a gain of 57% from the current price of $152.
The main risk is if OpenAI delays purchases in its contract with Oracle. Another one is that Oracle's legacy businesses could lose out to AI. Either of these would pressure sales and earnings forecasts, making the debt burden look scary. But we think the business is well positioned, dwarfing any concerns about financing.
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March 19, 2026 08:00 ET (12:00 GMT)
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