Citi: Oracle’s AI expansion: Funding gap and cloud growth path come into clearer focus

How much more funding does cloud expansion need?

Oracle expects to need approximately 20 billion dollars in additional financing for the FY26 to FY30 investment cycle, including approximately 10 billion dollars from equity financing and 10 billion dollars from debt financing. The company says its FY28 funding needs are largely covered.
The company expects infrastructure spending to peak in FY27 and FY28 before falling, with approximately 30 billion dollars in free cash flow potentially generated in FY29. This outlook contrasts with Citi’s previous expectation of free cash flow consumption.
Customer prepayments, supplier financing and arrangements such as BYOC help reduce upfront cash needs by approximately 50%. The company says returns on investment are broadly similar across contract types.

Oracle integrates cloud infrastructure, databases, applications and security controls, allowing AI agents to work within the permissions governing an enterprise’s existing data and business processes. The number of AI agents in production rose from fewer than 1000 in May to more than 3500 in September, and more than 7000 customers now use the company’s AI features.
Management says migrating customers to the cloud can increase revenue by 3 to 4 times, with an additional opportunity of approximately 3 times from cross-selling adjacent applications to those customers. AI and agents could further expand monetization opportunities.
The company expects AI-driven setup and configuration tools to reduce the work required for implementation and expansion by 50% to 70%. Over the long term, it also plans to move gradually from per-seat pricing to pricing based on usage and outcomes.

Last quarter, Oracle completed deployments totaling approximately 850 megawatts across 38 projects in 11 countries and signed 72 new data center contracts. The company says it takes an average of 161 days from signing to obtaining usable power, followed by approximately 21 days before revenue generation begins.
Approximately half of the new capacity comes from a broader range of sites of different sizes, rather than an overreliance on large gigawatt-scale sites. The company expects Oracle Cloud Infrastructure (OCI) capacity to reach approximately 10 gigawatts in FY28.

Oracle reiterated its FY30 targets of at least 225 billion dollars in revenue and earnings per share of 21 dollars. Citi maintained its Buy rating and 330 dollar price target, with its valuation based on its forecast FY30 non-GAAP earnings per share of 21.50 dollars, a price-to-earnings multiple of approximately 18 times, and discounting.
Citi notes that long-term margins could be below its model if capital expenditure required for contracted workloads and competitive buildouts exceeds expectations. Weaker AI infrastructure demand, a slower ramp-up in usage or intensifying competition would also affect growth and profitability.