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

Oracle ORCL released its fiscal third-quarter earnings report on March 10. Here’s Morningstar’s take on Oracle’s earnings and stock.

Key Morningstar Metrics for Oracle Stock

• Fair Value Estimate

  : $220.00

• Morningstar Rating

  : ★★★★

• Morningstar Economic Moat Rating

  : Narrow

• Morningstar Uncertainty Rating

  : Very High

What We Thought of Oracle’s Fiscal Q3 Earnings

Oracle delivered outstanding third-quarter results ahead of expectations, with total revenue up 22% to $17 billion and cloud revenue up 44% to $9 billion. Most importantly, cloud infrastructure revenue expanded 84% to $5 billion, and it is the main contributor to Oracle’s quarterly outperformance.

Why it matters: We are content with Oracle’s pace to expand its data center footprint. Demand for AI training and inference continues to outgrow supply, which supports our accelerating growth outlook for Oracle Cloud Infrastructure. OCI revenue should grow 77% in fiscal 2026 and 117% in fiscal 2027.

• Ninety percent of the 400-megawatt data center capacity Oracle delivered in the quarter was on or ahead of schedule. Considering the scale of OCI’s buildout, a strong record of on-time delivery is evidence of solid execution that should maintain customer trust and enable faster time to revenue.

The bottom line: We raise our fair value estimate for narrow-moat Oracle to $220, from $215 previously, based on higher-than-expected near-term demand for AI compute. Shares look undervalued following the stock’s 8% after-hours rally.

• Clarity around Oracle’s funding and market demand can mitigate investor concerns around OCI’s future growth. However, we reiterate our Very High Morningstar Uncertainty Rating for Oracle, as the demand and competitive landscape for AI cloud can change rapidly over the long term.
• Our base case assumes that AI infrastructure will continue to see high demand that allows Oracle to reach its $225 billion revenue goal by fiscal 2030. In this case, there is a clear path for Oracle stock to converge with our fair value estimate as a result of on-time capacity delivery each quarter.

Coming up: Besides reiterating its fiscal 2026 total revenue guidance of $67 billion and capital expenditure guidance of $50 billion, management raised its fiscal 2027 revenue guidance to $90 billion, a $5 billion increase from last October’s investor meeting.

Fair Value Estimate for Oracle Stock

With its 4-star rating, we believe Oracle’s stock is moderately undervalued compared with our long-term fair value estimate of $220 per share, which implies a fiscal 2026 enterprise value/sales multiple of 10 times and an adjusted price/earnings multiple of 29 times. Following a period of rapid growth, Oracle’s forward adjusted price/earnings should gradually step down to 14 times by fiscal 2030. We expect Oracle’s annual revenue growth to accelerate to an average of 30% 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 accounts for around 85% of the company’s revenue by fiscal 2030. Meanwhile, we expect a five-year CAGR of 78% for OCI and 9% for OCA. Total cloud revenue (OCI plus OCA) is expected to grow around tenfold over the next seven years.

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. Companies tend to stay with the same vendor for years on the application side and even decades for core systems to ensure optimal business continuity. In addition, cloud infrastructure revenue is also very sticky due to the high cost and risk of data ingress and egress. These features should keep Oracle’s return on invested capital above its cost of capital over the next 10 years, as it is a key player in these areas.

Read more about Oracle’s economic moat.

Financial Strength

We think Oracle’s financial standing is under pressure due to its ambitious cloud infrastructure expansion plan. The company’s cash balance is at the lowest level in years, and it will add hundreds of billions of liabilities in the form of debt, leases, and vendor financing, to meet its capital needs for the data center buildout.

We don’t think refinancing risk would become a major concern for Oracle, as the company’s credit rating remained investment-grade even after it began borrowing to build new data center capacity. Although the company’s leverage is relatively high among our software coverage, its debt-to-adjusted-EBITDA ratio has stabilized between 3 times and 4 times over the past five years, and we expect a continuous improvement of Oracle’s debt/adjusted EBITDA ratio regardless of its heavy investment in cloud infrastructure, eventually reaching below 2 times by fiscal year 2029.

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 AI cloud infrastructure demand and, to a lesser extent, intensified competition among database products.

The majority of OCI’s existing remaining performance obligations come from AI companies that operate large language models. Most notably, OpenAI booked over $300 billion of OCI capacity that is set to deliver starting in 2027. Considering that AI is probably the fastest-evolving technology in our recent history, it is extremely challenging to give an accurate prediction of the long-term data center demand of large language models.

Based on current evidence, OpenAI is the leading large language model provider, and Oracle’s relationship with OpenAI should bring the company stable demand in both model training and inference. That said, customer concentration is a real risk for Oracle, given its outsize exposure to OpenAI. We see a scenario wherein OCI successfully converts all bookings into revenue as AI becomes prevalent and OpenAI maintains its leadership. However, OpenAI or other customers can also dramatically reduce or cancel their bookings if their generative AI products miss the growth targets.

Read more about Oracle’s risk and uncertainty.

ORCL Bulls Say

• Scaling of OCI 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 industry-leading performances in terms of stability and security.
• OCI 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 Rachel Schlueter.