This analysis breaks down Oracle‘s (ORCL) cloud infrastructure (OCI) into three key segments to project its revenue growth and gross margins, aiming to solidify its position as the fourth global hyperscaler. The report highlights a significant $30 billion annual contract as a catalyst for OCI’s importance in Oracle’s revenue reacceleration.
The three OCI segments and their projected performance through Fiscal Year 2029 are:
Core OCI: Expected to grow at a 49% compound annual growth rate (CAGR) with a projected gross margin of 65%.
DBaaS (Database as a Service): Projected to grow at a 37% CAGR with a gross margin of 75%.
* AI Services: Anticipated to experience the highest growth at a 104% CAGR, with a projected gross margin of 30%.
While this projected mix, particularly the higher growth in AI services with lower margins, is expected to put downward pressure on Oracle’s overall gross and operating margins, the base case scenario forecasts operating income to grow at a 13% CAGR through FY29. This scenario, which does not fully account for the considerable cloud deal, also anticipates an 11% annualized EPS growth, factoring in increased interest expenses due to rising capital expenditures.
The analysis suggests that if OCI’s growth leans more heavily towards AI services, as recent filings indicate and as supported by the bull case, this would likely lead to a greater impact on margins and free cash flow (FCF). However,it would also result in higher revenue and EPS compared to the base case projections. For clients of EVR-ISI, a “choose your own adventure” (CYOA) model has been developed to allow for personalized analysis by inputting custom growth and margin estimates.
Oracle Corporation (NYSE:ORCL) is identified as a database management and cloud service provider. The report acknowledges Oracle’s investment potential but suggests that certain AI stocks may offer greater upside potential with reduced downside risk.
