Oracle’s AI Surge Fuels Analyst Optimism for Skyrocketing Growth

Cloud giant positioned for major long-term value creation, says Bernstein

Bernstein is doubling down on Oracle, anticipating significant long-term value as the artificial intelligence revolution fuels its cloud services and infrastructure. Analyst Mark Moerdler reaffirmed his “outperform” rating, boosting his price target to $308 from $269. This new target suggests a potential upside of nearly 22% for the stock, which has already surged approximately 51.5% this year.

A Cloud Transition in Full Swing

**Moerdler** highlighted Oracle’s position in the nascent stages of a massive cloud transformation. He noted that Oracle Cloud Infrastructure (OCI) is on course to become the fourth-largest global hyperscaler, with growth accelerating.

“Oracle is in the early days of a massive Cloud transition, with Oracle Cloud Infrastructure (OCI) on track to become the 4th largest global hyperscaler and growth accelerating,” the analyst wrote in a Tuesday note to clients. “While most of the revenue today is from CPU-centric workloads, with the recent announcement of a mega contract, growth should further accelerate driven by AI, creating a substantial investment opportunity.”

—Mark Moerdler, Analyst

Massive AI Contract to Drive Future Revenue

Oracle appears to be on track to meet its ambitious growth projections. The company expects its fiscal year 2029 revenue to surpass the $104 billion target initially set in September, according to its June financial report. A recently finalized multiyear contract with OpenAI is a key catalyst, projected to generate over $30 billion in cloud revenue starting in fiscal year 2028. These expectations lead **Moerdler** to foresee substantial increases in Oracle’s revenue and operating margins over the next five to ten years, driving the stock’s valuation higher.

For instance, the tech industry saw cloud infrastructure spending grow by 19% year-over-year in the first quarter of 2024, reaching $66.4 billion globally, according to Synergy Research Group (Statista, 2024).

Navigating Near-Term Margins for Long-Term Gains

**Moerdler** acknowledged that Oracle’s pivot to the cloud may initially impact margins. However, he pointed to the potential for operating leverage to offset these short-term effects, drawing parallels to Microsoft’s successful execution.

“We expect Oracle’s growth to accelerate for the next few years; revenue and operating profit growth will accelerate and once growth slows FCF margins will rebound and the value created for investors will be substantial. Looking 5-10 years out Oracle could be many times larger on most factors,” **Moerdler** stated.

—Mark Moerdler, Analyst

He further emphasized Oracle’s proven ability to achieve sustained operating leverage, suggesting a similar positive trajectory to that seen at Microsoft.