Oracle’s cloud revenue forecast is incredible.
Wall Street analysts are big fans of Oracle (ORCL 1.39%). Across the 43 analysts that currently cover the stock, most of the analyst ratings are buy or strong buy. The average analyst price target is just over $345 per share, while the most optimistic price target is a whopping $430 per share. The stock currently hovers around $280.
Why the optimism? Oracle’s artificial intelligence (AI) infrastructure business is absolutely booming.
Image source: Getty Images.
It’s all about AI and the cloud
Software has long been Oracle’s bread and butter, but AI infrastructure is rapidly becoming the key to the company’s growth story. Through fiscal 2030, Oracle expects revenue from cloud infrastructure to grow at a 75% compound annual rate to $166 billion. To put that number in perspective, the company generated just over $57 billion in total revenue in its latest full fiscal year.
While Oracle is striking AI infrastructure deals with many customers, a megadeal with OpenAI is responsible for a large chunk of this incredible revenue forecast. OpenAI has reportedly agreed to purchase $300 billion in AI infrastructure usage over the next five years. The company has more than 700 AI infrastructure customers in total, but OpenAI looms large on the customer list.
Today’s Change
(-1.39%) $-3.82
Current Price
$271.33
Key Data Points
Market Cap
$784B
Day’s Range
$270.14 – $277.20
52wk Range
$118.86 – $345.72
Volume
6.8M
Avg Vol
22M
Gross Margin
66.10%
Dividend Yield
0.01%
What could go wrong for Oracle?
While Oracle’s AI infrastructure revenue forecast is impressing analysts, generating that revenue will require OpenAI to raise enough funding to generate enough revenue of its own to pay for this deal over the next five years. OpenAI expects to burn cash at a blistering rate — a recent report pegs the company’s forecast for cumulative cash burn through 2029 at $115 billion. Where that cash will come from is an open question.
Oracle is taking a big risk hitching its wagon to OpenAI. If the AI boom fizzles, the start-up may not be able to raise the cash necessary to fully fund this deal. While analysts are excited about Oracle’s prospects today, the company’s revenue forecast is far from guaranteed.
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
