Why is this analyst day attracting attention?

  • Oracle will hold its financial analyst day on 28 October during the Oracle AI World conference. Its share price has fallen approximately 50% over the past year, and Bernstein believes the event offers an opportunity to improve investor sentiment.
  • Remaining performance obligations (RPO) have grown strongly over the past four quarters, and the firm expects the company may raise its financial targets; investors, however, are more eager to understand how the AI compute business will generate profits and how much funding expansion will require.
  • Bernstein maintains its Outperform rating and 325 dollar price target, implying approximately 158% upside from the 126.16 dollar closing price on 23 October.

Can large orders translate into durable revenue?

  • Oracle has a large amount of non-cancellable RPO. Bernstein says OpenAI accounts for less than 50% of it, and that share is declining as new cloud infrastructure and other deals are signed.
  • The firm estimates that Oracle has added approximately 100 billion dollars in RPO since signing the OpenAI contract in the first quarter of fiscal 2026, a substantial part, and perhaps all, of which came from other customers. This provides evidence of a broader customer base.
  • Investors remain concerned about exposure to a single customer, overbuilding of AI capacity, and pressure on compute prices once supply normalizes. Bernstein wants management to provide more detail on the customer mix and why customers would choose to renew when large contracts expire.

Why is revenue growth accompanied by declining margins?

  • Oracle is shifting from a high-margin, low-capital-expenditure software company toward cloud and AI data center businesses. Bernstein believes that returns on investment and profitability have consequently become a focus for long-term investors.
  • The firm expects total revenue to rise from 67.4 billion dollars in fiscal 2026 to 137.4 billion dollars in fiscal 2028, while the adjusted operating margin falls from 42.9% to 38.6% and the overall gross margin from 67.1% to 50.7% over the same period. Revenue growth and margin pressure are occurring together.
  • Bernstein believes that, if construction is executed successfully, the value of the AI business will emerge in financial performance in fiscal 2028 through 2029; the non-AI business continues to grow and generate substantial cash.

How significant are the funding and construction pressures during expansion?

  • Bernstein’s model forecasts capital expenditure rising from 55.7 billion dollars in fiscal 2026 to 93.1 billion dollars in fiscal 2027 and 97.9 billion dollars in fiscal 2028. The firm believes fiscal 2028 may be the peak of capacity construction, with funding needs easing in fiscal 2029.
  • Depending on the timing of construction execution, Bernstein estimates that Oracle may need an additional 10 billion to 20 billion dollars in funding in 2027 or the following year. The firm notes tight conditions in the debt market; equity financing is one possibility and could also put pressure on the share price.
  • Delays in data center construction and approvals have brought execution risk into focus. Bernstein expects construction to continue at least through calendar 2028 and wants the company to provide a clearer construction roadmap, contingency arrangements and an assessment of the impact of delays on financial targets.