Oracle's Earnings Outlook Improves with AI Expansion but Free Cash Flow Remains a Concern
Oracle is showing signs of an improved earnings outlook as it positions itself as a major player in GPU-as-a-Service (GPUaaS) and AI infrastructure. On September 4, Morgan Stanley analyst Sanjit Singh raised Oracle's price target to $210 from $207 while maintaining an 'Equal Weight' rating. The optimism is tied to better-than-expected fiscal fourth-quarter results with a 21% year-over-year revenue increase, cloud revenue up 47%, and OCI revenue surging by 93%. Remaining performance obligations hit a record high of $638 billion. Despite these gains, Oracle faces significant cash flow pressure due to its capital-intensive AI expansion. Capital expenditures rose sharply from $21 billion in fiscal 2025 to $55.7 billion in fiscal 2026, with free cash flow turning negative at -$23.7 billion. The company raised substantial debt and equity financing for these investments and expects even higher capital spending of up to $95 billion in fiscal 2027. While Oracle's AI narrative is strong, the challenge lies in whether its economics can improve fast enough to justify such large expenditures.
Topics: AI capital expenditures free cash flow GPUaaS Morgan Stanley