Goldman Sachs sharply raises Oracle's target price but maintains "Neutral" rating: Massive capital expenditures put significant pressure on short-term profits.
```
After Oracle released explosive guidance, its stock price once soared by 36%. Goldman Sachs significantly raised Oracle’s target price in its latest report but maintained a “Neutral” rating, believing that the massive capital expenditures will push back the cash flow breakeven point to fiscal year 2029, and that it remains unclear whether these investments can be translated into revenue growth.
According to Trading Desk reports, after Oracle’s fiscal year 2026 Q2 results were released, Goldman Sachs sharply raised its target price from $195 to $310. Oracle’s current stock price is $292.18, about 6% potential upside, while Goldman Sachs maintains its neutral rating.
Oracle’s Q2 revenue grew 13% year-over-year, but was 1% below market expectations. Despite the lackluster quarterly performance, Oracle management significantly raised OCI (Oracle Cloud Infrastructure) long-term revenue estimates, expecting revenue to hit $32 billion in fiscal year 2027.
This aggressive forecast led Goldman Sachs to adjust its expectations for Oracle’s IaaS business: projecting revenue of $18 billion in fiscal 2026, $32 billion in 2027, $55 billion in 2028, and $94 billion in 2029.
In addition, Oracle’s quarterly results showed its remaining performance obligations (RPO) surged 359% year-over-year to $455 billion, signaling strong customer demand but also raising questions about how the company will fund the necessary compute cluster build-outs. Goldman Sachs thus adjusted its capital expenditure expectations, pushing the free cash flow breakeven point to fiscal 2029.
Quarterly Results Miss Expectations, Cash Flow Under Pressure
Goldman Sachs stated that Oracle’s total revenue in fiscal 2026 Q2 was $15.039 billion, up 13% year-over-year, but 1% below Wall Street expectations. The company’s gross profit also missed expectations, down 3% year-over-year.
Most notable was the sharp increase in capital expenditures. This quarter’s capex reached $21.2 billion, 62% higher than expected, directly causing free cash flow to deteriorate by 123%.
Cloud services and license support revenue was $12.141 billion, up 15% year-over-year, but still 0.6% below expectations. Cloud license and on-premises license revenue was $766 million, down 12% year-over-year, a steeper decline than expected. Hardware revenue was $670 million, up 2% year-over-year, slightly better than expected.
Operating margin was 42%, 60 basis points higher than expectations, indicating some effectiveness in cost control.
OCI Business Outlook Significantly Raised, Aggressive Growth Forecasts
Oracle management has shown great confidence in OCI cloud infrastructure’s long-term prospects, sharply raising the next five years’ revenue forecasts. The company expects OCI revenue to quickly climb from current levels to $32 billion in FY2027, $73 billion in FY2028, $114 billion in FY2029, and $144 billion in FY2030.
Goldman Sachs accordingly adjusted its forecast model for Oracle’s IaaS business, expecting revenue to grow from $18 billion in FY2026 to $94 billion in FY2029. Analysts believe Oracle’s price/performance advantage in the IaaS market is competitive against hyperscale cloud providers, especially in generative AI workloads.
Oracle’s Q2 RPO surged 359% year-over-year to $455 billion, a new historical high, indicating the company has secured a large number of long-term contracts, laying a solid foundation for future growth.
Surging Capital Expenditure Raises Cash Flow Concerns
To support the rapid expansion of OCI, Oracle’s capital expenditure for the quarter reached $8.468 billion, 62% above expectations. Goldman Sachs expects the company to maintain high levels of capital investment in the coming years, raising its FY2026 capex forecast from $26.291 billion to $35.109 billion, and FY2027 from $28.92 billion to $42.131 billion.
This aggressive capital spending plan will have a major impact on the company’s cash flow. Goldman Sachs has postponed its Oracle free cash flow breakeven expectation to fiscal 2029, reflecting concerns about the company’s short-term cash-generating ability.
Analysts noted that while they recognize Oracle’s long-term commitment to AI investments, they lack sufficient confidence that these capital expenditures can be converted into revenue growth—especially with no clear visibility yet on AI inference business revenue contributions.
Risk Warning and DisclaimerThe market has risks; investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account individual users’ particular investment objectives, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment is at your own risk. ```