Big contracts, big goals, high expectations! For Oracle, the market remains "skeptical."

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Author of this article: Li Jia

Source: Hard AI

Recently, Oracle's Investor Day released several major announcements: including a series of large orders, an upward revision of its already lofty fiscal 2030 revenue growth target, and an increase in the compound annual growth rate for earnings per share. However, the stock price reacted lukewarmly after hours, and Oracle was unable to fully convince the market.

According to a research report by Morgan Stanley, they hold a cautiously optimistic attitude toward Oracle. Although the company shows strong business growth momentum, the lack of clear overall profit margin targets and massive capital expenditure plans introduces potential uncertainties as the main concern.

Financial Long-Term Targets Raised Significantly, But Near-Term Growth Falls Short of Expectations

The report points out that the performance expectations revised upward by Oracle during Investor Day mainly focus on long-term targets. The company raised its revenue target for fiscal 2030 significantly from the previous approximately $200 billion to about $225 billion, representing a compound annual growth rate of 31% (fiscal 2025-2030), and set the non-GAAP earnings per share target at $21, with a CAGR of about 28%.

Looking at specific fiscal years: the revenue target for fiscal 2027 is $85 billion, about 3.4% higher than market expectations; for fiscal 2028, it's $130 billion, leading by about 5.9%; but by fiscal 2029 and 2030, the advantage expands to 10.8% and 13.4%. More critically, on an EPS basis, the fiscal 2027 target of $8 is essentially in line with the market, the 2028 target of $10.65 is even slightly below the market expectation of $11.21 (lower by 5.0%), and only by fiscal 2029 and 2030 does it exceed by 8.0% and 13.5% respectively.

This "distant water cannot quench immediate thirst" situation causes investors to have doubts about the company's near-term execution capabilities, especially considering the company is currently severely constrained on capacity.

OCI Cloud Business Becomes Core Growth Engine

Morgan Stanley states that the main driver behind the revised targets comes from a more aggressive outlook on the OCI (Oracle Cloud Infrastructure) business. The company maintained its target of $18 billion in OCI revenue for fiscal 2026, but raised the fiscal 2027 target from $32 billion to $34 billion, fiscal 2028 from $73 billion to $77 billion, fiscal 2029 from $114 billion to $129 billion, and fiscal 2030 from $144 billion to $166 billion, implying a CAGR as high as 75%.

This target is supported by continued strong order momentum. After a backlog of $455 billion as of the end of the first fiscal quarter, the company signed new OCI contracts worth about $65 billion over the past 30 days — 7 deals with 4 clients, some from META — making the remaining performance obligation (RPO) now surpass $500 billion.

AI Infrastructure Profitability Clarified

The market previously had serious concerns about Oracle's AI infrastructure business gross margins, with third-party reports suggesting margins might be below 20%. In response, the company clearly stated that the gross margin for AI IaaS business is expected to be in the 30-40% range.

The company gave an illustrative example: a 6-year, 1GW, total contract value $60 billion AI infrastructure deal, assuming a gross margin of 35%, where land, data center, and power account for about 35% of costs, with compute, networking, and storage making up the rest. Notably, this 35% gross margin already includes $570 million in pre-revenue recognition costs, meaning normalized gross margin may tend toward the high end of the 30-40% range.

For non-AI business, the company also provided more details: distributed cloud grew 77% year-on-year in the first fiscal quarter, with an average deal size of $67 million and 40-60% gross margin; cloud-native customer growth was 46%, average deal size $97 million, with 40-60% gross margin; enterprise business grew 33%, with the highest gross margin of 65-80%.

Key Issues Remain Unanswered, Transparency in Doubt

Morgan Stanley points out that while the company provided more business details, several core issues remain unclear, which is also a key reason for the lukewarm market reaction.

First, the company did not provide a targeted framework for overall gross and operating profit margins. Although each business line has gross margin guidance, there is still no clarity on overall profitability expectations.

Second, the capacity investment plan lacks transparency. While the example shows that 1GW of data center capacity costs about $39 billion, the company did not provide a multi-year capital expenditure outlook. Management explained that variables change rapidly (such as mix of GPU types, storage, and general compute), but this makes it challenging for investors to assess future cash flow.

Third, the specific composition of the more than $500 billion RPO backlog is still unclear, including customer mix, contract durations, and crucial information such as whether it's for training or inference, none of which were disclosed.

Finally, the specific contribution of the cloud applications business to growth has not been clearly reflected in the new framework.

For investors, Oracle's story is full of appeal — the robust demand for AI infrastructure, the massive order backlog, and the multi-cloud strategy of the cloud database all possess long-term potential. But in the short term, whether capacity ramp-up can stay on schedule, whether profitability can be delivered, and the true quality of the huge orders all require the company to prove itself with real results. Until these uncertainties are resolved, the market's "wait-and-see" attitude may persist.

This article comes from WeChat Official Account "Hard AI". For more cutting-edge AI news, please go here

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