JPMorgan maintains Neutral on Oracle shares with $135 target

On Tuesday, JPMorgan reiterated a Neutral rating on Oracle Corporation (NYSE:ORCL) with a price target of $135.00. The firm’s analyst highlighted Oracle’s robust core artificial intelligence (AI) infrastructure bookings as a positive for the company’s cloud infrastructure business. The caution over Oracle’s valuation aligns with InvestingPro data, which shows the stock trading at a P/E ratio of 40.61x and high EBITDA valuation multiples. Despite recognizing Oracle’s achievements in the AI domain, the analyst expressed concern over Oracle’s valuation, which exceeds 50 times its expected unlevered free cash flow for the calendar year 2026 compared to its peers, which trade around 30 times. According to InvestingPro’s Fair Value analysis, Oracle appears to be trading above its intrinsic value.

The analyst pointed out that Oracle’s current valuation appears to factor in expectations of a significant acceleration in revenue growth, potentially in the mid-high teens or around 20%. This contrasts with the company’s current revenue growth of 6.23% and market capitalization of $496.77 billion. They noted that while Oracle’s potential in supporting large-scale AI workloads is promising, the valuation frameworks used by some may not fully account for the repayment of Oracle’s $96 billion debt, leading to skewed comparisons with other tech giants. InvestingPro subscribers have access to comprehensive debt analysis and 14+ additional valuation metrics for deeper insights.

Oracle has faced challenges in meeting its quarterly revenue forecasts and bringing data center capacity online to serve its backlog. With current revenues of $55.78 billion and an EBITDA of $22.92 billion, the ability to stand up data center capacity is seen as crucial for Oracle to drive higher revenue growth. The analyst suggested that Oracle’s near-medium term success hinges on operationalizing AI workloads, particularly those contracted with OpenAI, given the global adoption of OpenAI’s products. InvestingPro offers detailed operational metrics and growth forecasts through its comprehensive Pro Research Report, available for 1,400+ US stocks including Oracle.

The recent surprise in Microsoft (NASDAQ:MSFT) Azure’s calendar Q1 revenue growth was cited as an indicator of the potential for Oracle’s OCI business. However, there are concerns about whether Oracle is winning less attractive business compared to Microsoft. The analyst anticipates margin headwinds as AI workloads scale up but believes that revenue traction could offset this.

Furthermore, the upcoming Stargate project is expected to contribute to Oracle’s business, with industry discussions indicating that equipment has been arriving in Abilene, Texas. The analyst will be looking for updates on this initiative, which could notably affect Oracle’s performance.

In conclusion, JPMorgan’s stance on Oracle is cautiously optimistic, acknowledging the company’s organic recurring revenue growth and the ongoing cloud shift. While macroeconomic headwinds are a concern, demand seems stable, and positive investor sentiment may persist if OCI growth continues to outpace major hyperscalers. The need to establish data center capacity and maintain OCI bookings growth remains critical for Oracle’s valuation.

In other recent news, Oracle Corporation has been the subject of several analyst updates, reflecting various perspectives on its financial outlook and strategic initiatives. Cantor Fitzgerald maintained an Overweight rating on Oracle, with a price target of $175, emphasizing the company’s strength in AI infrastructure and its ongoing success in migrating workloads to Oracle Cloud Infrastructure (OCI). BMO Capital raised its price target for Oracle to $200, citing expectations for revenue acceleration and double-digit growth in operating income by fiscal year 2027, despite anticipated pressure on operating margins. Morgan Stanley (NYSE:MS) also increased its price target to $175, attributing this to strong bookings and a favorable foreign exchange environment, while maintaining an Equalweight rating.

BNP Paribas (OTC:BNPQY) Exane expressed optimism by raising Oracle’s price target to $190, driven by the company’s potential in AI workloads and the Stargate project, although concerns about datacenter capacity and labor shortages were noted. The firm expects Oracle to meet fourth-quarter consensus estimates with 9% constant currency growth, and projects 11-13% revenue growth for the first quarter of fiscal year 2026. TD Cowen reaffirmed a Buy rating with a $210 price target, highlighting strong demand for OCI and anticipated growth in fiscal year 2026. These recent developments underscore Oracle’s strategic focus on cloud and AI technologies, which are pivotal for its future growth trajectory according to various analyst firms.

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