- KeyBanc reiterates Overweight on Oracle and sets a $300 target, arguing a sum-of-the-parts view shows the core software and OCI infrastructure segments are undervalued after the stock’s recent drop.
- Oracle is still trading at rich multiples (about 38x P/E and 9.5x P/S) even as operating margins have drifted lower.
- The bull case hinges on OCI/RPO converting to revenue and infrastructure margins improving as AI demand scales.
- Key risks are a ~$50B AI data-center CapEx surge, rising debt and leverage, margin pressure from GPU-heavy infrastructure, and notable insider selling.
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Valuation & Price Target Rationale
KeyBanc, led by analyst Jackson Ader, reaffirmed its Overweight rating on Oracle (NYSE: ORCL) on January 14, 2026, while setting a $300 price target. The valuation is based on a sum-of-the-parts view, attributing approximately $125 per share to Oracle’s core business (applications and databases), and $75–$80 per share to its IaaS/infrastructure segment. This counters a noted decline in Oracle’s market cap—around one-third since late September—positioning the current price as presenting upside.
Financial Metrics & Performance
Oracle reported trailing twelve-month revenue of about $61.0–61.02 billion with revenue growth in the 9–14% range year-over-year, depending on the metric and source. Net margin remains strong at ~25%, and the operating margin is about 31–32%, though these have trended downward over recent years. Return on equity is extremely high (70-80%) while return on invested capital lags, often tracking below cost of capital—highlighting capital allocation as an ongoing concern.
Risk Drivers & Investor Concerns
Key risks for Oracle include:
- AI infrastructure capital expenditure surge: Oracle recently raised its CapEx guidance by over 40% to ~$50 billion, with major spending on data centers—$12 billion in the most recent quarter—aimed at supporting AI clients.
- High debt load: Long-term debt (including leases) has risen to ~$116–124 billion, creating leverage and credit risk concerns as growth spending accelerates.
- Margin pressure in infrastructure business, particularly in areas such as IaaS and when renting expensive GPU-intensive hardware. Gross margins for this segment are currently low (10–20%) but are expected to improve toward ~25%.
- Insider selling: Significant share sales over recent months may reflect either portfolio diversification or underlying concerns.
Strategic Implications
Oracle’s positioning as both a legacy enterprise software player and a growing AI cloud infrastructure provider demands balancing near-term execution with long-term strategic investments. KeyBanc is betting that both segments are undervalued under current market conditions. If Oracle can improve margin profiles in its infrastructure business—especially as GPU and AI demand scales—and sustain growth in its core, it could meet or surpass the $300 target. But execution risk is high: delayed returns from CapEx, reliability of RPO backlog converting to revenue, and handling of competitive cloud hyperscaler pressure are central to investor confidence.
Open Questions
- What is Oracle’s expected cash flow profile over the next 1-3 years, especially capacitor-adjusted (CapEx) cash flow given the surge in infrastructure investments?
- How resilient is Oracle’s remaining performance obligation backlog in saturated enterprise and cloud markets, particularly vs compression from pricing competition?
- What will be the timing of infrastructure margins turning positive or improving, particularly gross margins from current levels toward mid-20s percentages?
- How will Oracle manage debt servicing, interest costs, and financing risk in light of rising leverage and AI spending?
Supporting Notes
- KeyBanc sets a $300 price target for Oracle and maintains an Overweight rating.
- Core business value estimate: ~$125 per share; Infrastructure business (IaaS) valued at $75-$80 per share.
- Oracle’s market cap has dropped nearly one-third since late September.
- Oracle’s trailing twelve-month revenue is ~$61.02B; P/E ~37-38×; P/S ~9.5×; P/B ~19.
- Net margin ~25.3%; operating margin ~31.9%; declining trends over recent years.
- Company raised full-year CapEx forecast to ~$50B; spent ~$12B in latest quarter, largely on AI/data centers.
- Long-term debt (including operating leases) rose ~44% to ~$116.3B; debt-to-equity ratio ~4.15.
- Gross margins in infrastructure business currently between 10-20%, expected to rise toward ~25%.
- Insider activity: ~126,588 shares sold in past three months.
- Return on equity extremely elevated (~70-80%); return on invested capital under WACC.