- KeyBanc reiterates Overweight on Oracle and a $300 target, arguing the stock is undervalued after recent weakness using a sum-of-parts view.
- Its model values the core applications/database business at about $125 per share and OCI/IaaS at roughly 3.50 revenue ($7590 per share) on ~$61B TTM revenue.
- Execution risk is rising as cloud/AI capex is set to jump ~40% to ~$50B and debt has climbed to ~ $116B, while recent results and guidance were slightly soft.
- Despite strong net margins, operating margin erosion, ROIC below WACC, and notable insider selling add concerns about returns and capital discipline.
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KeyBanc’s valuation of Oracle (ORCL) reflects a segmented, sum-of-parts approach, which attributes value separately to Oracle’s legacy/database/applications business and its infrastructure/AI cloud build-out. The core business is pegged at ~$125/share, while its infrastructure segments (IaaS/OCI) are valued at approximately 3.5× revenue, or ~$75-80/share, resulting in the $300 price target. This target assumes management can execute well on growth expectations and tame margin erosion in infrastructure as cloud competition intensifies.
Oracle’s recent quarterly results, published December 2025, show both strength and warning signs. Revenue of ~$16.06-$16.1 billion (up ~14% year-over-year) beat or met many expectations in aggregate, but cloud applications and infrastructure revenue fell slightly below analyst estimates. Meanwhile, capital expenditures are increasing sharply—~40% year-over-year to $50 billion for the year—with long-term debt rising to ~$116.3 billion and credit spreads widening, reflecting rising concern among debt markets.
Profitability remains strong, with a net margin around 25.3%, but the operating margin has been declining at ~5% annually over the past five years. Oracle’s Altman Z-score of 2.55 places it in a “grey” zone regarding financial stress. Additionally, ROIC is now below its weighted average cost of capital, an efficiency red flag. Insider activity indicates significant selling, which could reflect concerns about valuation or internal expectations.
Strategic implications: Oracle is positioning itself aggressively in AI infrastructure, aiming to catch up with cloud hyperscalers, and large customer deals (including Stargate/OpenAI commitments) are intended to underpin future growth. But this necessitates high upfront capital spending and debt financing, which increases execution risk. Key questions include whether revenue growth (especially from cloud/IaaS) can outpace both capex and margin pressure; whether the cost structure and returns on cloud investments will align favorably; and whether investor patience will hold in light of valuation multiples and competitive pressures.
Supporting Notes
- KeyBanc maintains Oracle’s Overweight rating with a $300 price target, saying that either or both of its core and infrastructure segments are being undervalued.
- Oracle’s current P/E is ~38.0 (historical median ~24.4); P/S is ~9.6 (historical median ~5.27); P/B is ~19.4; institutional ownership ~45.2%.
- Oracle reported TTM revenue of approximately $61.02 billion, with ~9.6% three-year revenue growth; net margin around 25.28%, operating margin ~31.94% but declining over time; Z-score 2.55; high beta (~2.04); debt-to-equity ~4.15.
- Recent fiscal quarter (Q2 FY2026) revenue was ~$16.06-$16.1 billion, up ~14% YoY, falling slightly short of estimates; OCI/IaaS revenue grew ~68% to ~$4.1 billion but still just under expectations; revenue guidance came in at ~19-21% for next quarter.
- Oracle is increasing annual capital expenditure to ~$50 billion, up ~40%; in the recent quarter ~US$12 billion spent; long-term debt including leases rose to ~$116.3 billion.