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Investing.com -- Scotiabank initiated coverage on Oracle (NYSE:ORCL) with a Sector Outperform rating and a $300 price target on Thursday, arguing that the software giant is reinventing itself as a leader in AI infrastructure.
“Like a butterfly emerging from a chrysalis, we see Oracle transitioning into a new paradigm,” Scotiabank (TSX:BNS) analysts wrote, adding that Oracle is positioning itself as the “Tier-1 independent AI infrastructure provider.”
They believe many investors remain sceptical about Oracle’s GPU-as-a-service strategy, but the firm’s analysis suggests the market may be underestimating its momentum.
Oracle’s AI-focused expansion, particularly through its NeoCloud initiative and upcoming Abilene data centre, could drive a fourfold increase in GPU infrastructure revenue to approximately $10 billion by fiscal 2026, according to the bank.
“The ‘pain trade’ is higher for ORCL shares if management continues its stellar execution, as there remain many NeoCloud skeptics on the sidelines,” the analysts said.
Scotiabank also highlighted Oracle’s competitive edge through “competitive pricing, top-tier performance, and strong security position” in cloud infrastructure, bolstered by NVIDIA (NASDAQ:NVDA) support and the firm’s independence from foundation model development.
The note also addressed investor concerns over margins as cloud revenue scales. While gross margins may dip, Scotiabank projects non-GAAP operating margins of 42.4% in 2026, ahead of consensus.
“Our proprietary forensic analysis computes Oracle non-GAAP operating margin in F2026E of 42.4%, above consensus estimates,” the analysts said.
They also see upside in Oracle’s cloud database partnerships with Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL), projecting database cloud revenues to rise to $4.5 billion by fiscal 2027.
“This nearly 50-year-old software giant is having an AI renaissance, and we think ORCL’s valuation premium to large-cap software peers is justified, given its 2x faster projected revenue growth,” concluded Scotiabank.