Analysts revamp Oracle stock forecast, with new financial model

Oracle may have joined the artificial intelligence party a little late, but it has nonetheless managed to position itself as a major player. We can see that the company's AI plans are going forward, thanks to a recent announcement concerning Stargate.

OpenAI, Oracle, and Vantage Data Centers, a provider of hyperscale data center campuses, recently announced plans to develop a data center campus outside Milwaukee in Port Washington, Wisconsin.

The new campus will consist of four data centers, which will have a power capacity of close to 1 GW, and is part of OpenAI and Oracle's partnership to invest up to 4.5 GW of additional Stargate capacity. According to the companies, construction is scheduled to begin soon and is expected to be completed by 2028. 

Many investors are uncertain whether Oracle's substantial investments in AI infrastructure projects will yield good returns, and Bank of America has an answer to their question.

Bank of America sees Oracle as the fourth AI infrastructure hyperscaler

Bank of America analysts Brad Sills and Madeline Brooks updated their opinion on Oracle (ORCL) stock and built a new financial model. They said that Oracle's entry into AI compute marks its transition into a fourth hyperscaler. 

To address the question about investments delivering attractive returns, analysts built a bottom-up model of the OpenAI deployment that replicated the cost stack, utilization, and cash flow profile of a full-scale compute contract. 

They said, "Our analysis yields a project level [initial rate of return] of 9% initially, expanding to 16% upon contract renewal. These results suggest that foundational project economics are expected to shift from capital-intensive strategic entry points into cash-yielding infrastructure assets."

Analysts noted that Oracle's financing approach further de-risks execution, as the company has funded most projects through low-cost debt. 

Sills said that Oracle is structuring AI compute contracts as non-cancelable, non-modifiable, take-or-pay contracts, ensuring stable cash flows and cost visibility. This approach contrasts sharply with Neoclouds and other hyperscalers, which are building speculative capacity.  He concluded that these dynamics support Oracle's emergence as a profitable, AI-native hyperscaler. 

Analysts reiterated a buy rating with a price target of $368, based on their estimate of the enterprise value-to-sales ratio for calendar year 2027 of 12.4x, or 0.5x adjusted for 25% growth, a premium to the large-cap software group trading at 8x or 0.6x for 16% growth.

Analysts noted risks to their price objective:

• Severe downturn in enterprise software spending
•  Currency headwinds
•  Issues with the integration of past acquisitions
•  Database competition from IBM, Amazon, and Microsoft
•  Apps competition from SAP, Microsoft and others
•  Development of viable open source database and middleware alternatives

Recent Oracle news

G42 recently revealed significant progress on the construction of Stargate United Arab Emirates (UAE), a 1 GW large-scale AI infrastructure cluster being developed by Khazna Data Centers, a G42 company, within the 5 GW UAE–U.S. AI Campus in Abu Dhabi. 

The project is being built in partnership with OpenAI, Nvidia, Cisco, SoftBank, and Oracle. G42 and its partners are focused on building the first 200MW of the 1GW mega-scale infrastructure on an accelerated timeline. Construction is now well underway and progressing steadily toward the planned 2026 delivery.

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The United States Department of the Air Force (DAF) has partnered with Oracle to use the company's Fusion Cloud Applications. DAF stated that with an integrated suite of AI-powered cloud applications, it can dedicate more resources to improving Air Force readiness and supporting its airmen. The app suite enables them to optimize finance, HR, and supply chain processes. 

Oracle and AMD revealed on October 14 an expansion of their collaboration. The first publicly available AI supercluster, powered by AMD Instinct MI450 Series GPUs, will undergo its initial deployment of 50,000 GPUs in Oracle Cloud Infrastructure, commencing in calendar Q3 2026 and expanding in 2027 and beyond.

Related: Bank of America resets Intel stock forecast after earnings