Oracle 4Q26 Earnings Robust, Cloud Business Accelerates

Overview

Bernstein remains positive on Oracle's 4Q26 earnings, noting strong execution and improving business clarity. Although the stock fell approximately 10% after the report, primarily due to concerns over FY27 capital expenditure guidance ($90-95 billion) and an additional financing plan ($40 billion), Bernstein believes these figures were already factored into long-term models. The company's cloud business is growing strongly, RPO increased significantly, and management communication has become more transparent, aiding investors in modeling the value created by AI data center construction.

Core views

In terms of performance, Oracle's 4Q26 total revenue was $19.2 billion, up 21% YoY, landing at the high end of guidance. Cloud revenue was $9.91 billion, up 47% YoY, with OCI (CPU & GPU) growing 119% to $4.8 billion and Cloud Database growing 29% to $800 million. Non-GAAP EPS was $2.11, up 24% YoY, beating consensus estimates. Remaining Performance Obligations (RPO) increased $85 billion QoQ to $638 billion, driven largely by large AI contracts. Of this, $75 billion came from customer prepayments or bring-your-own-hardware models, significantly reducing the capital Oracle needs to raise. Among the new RPOs, four customers signed contracts exceeding $8 billion, indicating a diversified customer base. Regarding capital expenditure and financing, the FY27 total capex guidance is $90-95 billion, of which $20-25 billion will come from customer prepayments and supplier payment management, leaving only $70 billion as Oracle cash spending. The FY27 financing plan stands at $40 billion (including $20 billion of authorized equity financing). Management expects FY28 to be the peak year for capital expenditure, after which capital needs will be minimized or require no additional financing. Business Outlook: OCI gross margins are expected to be at their trough in FY27 before improving. Cloud Database services are expected to reach $20 billion in FY30, up from $2.4 billion in FY25, implying a 53% CAGR. Sovereign cloud opportunities represent a significant growth vector. Through Oracle Alloy, Oracle has established a large sovereign cloud business, positioning it best among major hyperscalers.

Analysis framework

Bernstein uses P/FE (Price/Forward Earnings) valuation methodology to value Oracle. Applying a multiple of 24.5x adjusted P/FE to the estimated adjusted EPS in 12 months ($15.22), plus net cash per share (-$47.6), yields a target price of $325. Analysts reduced the P/FE multiple from 25.5x to 24.5x, reflecting a broad downward revision in software peer valuations. The report also examines the alignment between capital expenditure and financing plans, noting that of the $90-95 billion FY27 capex, $20-25 billion comes from customer prepayments, requiring only $70 billion in cash spend, covered by the $40 billion financing plan. Analysts emphasize the improved clarity in management communication regarding capital expenditure and financing plans, cost pass-through capabilities for component costs, capacity expansion timelines, and OCI AI margin trends, all of which help bolster investor confidence.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  P/FE (Price/Forward Earnings) Forward PE Valuation

  P/FE is a valuation method dividing current stock price by expected EPS over the next 12 months, making it more forward-looking than traditional P/E. Bernstein uses a 24.5x P/FE multiple for Oracle, reflecting market expectations for future earnings growth.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Capital Expenditure and Financing Alignment Analysis

  Analyzes the degree of alignment between a company's capital expenditure needs and funding sources. Oracle's FY27 capex of $90-95 billion includes $20-25 billion from customer prepayments, requiring only $70 billion in cash spend, covered by the $40 billion financing plan.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  AI Data Center Capacity and Demand Matching

  Oracle has secured over 10GW of data center capacity, mostly under contract, with capacity coming online over the next three years. The degree of match between capacity and demand is key to assessing the sustainability of growth for cloud infrastructure companies.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Oracle Corp (ORCL.US)

  Direct Beneficiary: Driven by AI data center build-out and cloud business growth

  Strengths

  Accelerated OCI growth (119%), significant increase in RPO, customer prepayment model reduces capital needs, clear management communication

  Weaknesses

  Slowing SaaS business growth, massive capital expenditure scale raises investor concerns

  Comparison

  Better positioned than hyperscaler peers regarding sovereign cloud opportunities

  Risks

  Customer concentration risk, AI winter scenario, database sales pressure, slow SaaS ERP adoption

Key data

• 4Q26 Total Revenue$19.2 billionUp 21% YoY, high end of guidance
• Cloud Revenue$9.91 billionUp 47% YoY
• OCI Revenue$4.8 billionUp 119% YoY
• RPO (Remaining Performance Obligations)$638 billionUp $85 billion QoQ
• FY27 Revenue Guidance$90 billionUnchanged
• FY27 Non-GAAP EPS Guidance$8.05Raised
• FY27 Capital Expenditure Guidance$90-95 billionOf which $70 billion is cash spend
• FY27 Financing Plan$40 billionIncludes $20 billion authorized equity financing
• Target Price$325Raised from $319

Impact & implications

Bernstein believes Oracle's clear communication and continued execution will strengthen investor confidence, making it easier for investors to model the value created by AI data center construction. FY28 is expected to be the peak year for capital expenditure, after which capital needs will be minimized or require no additional financing. Sovereign cloud opportunities are a key growth driver for Oracle; the company offers a large and growing sovereign cloud business through Oracle Alloy. Cloud Database services are expected to reach $20 billion in FY30, up from $2.4 billion in FY25, implying a 53% CAGR.

Risks

• Customer concentration risk
• AI winter scenario (failure of Gen AI globally)
• Decline in database sales due to cloud and alternative database pressures
• SaaS ERP adoption slower than expected
• Cybersecurity or other concerns reducing cloud demand
• Demand for Oracle's autonomous databases and multi-cloud databases below expectations
• OCI growth issues, particularly in sovereign cloud

What to watch

• Execution of FY27 capital expenditure
• Trend in OCI gross margins (trough in FY27, followed by improvement)
• Development of sovereign cloud business
• Growth of Cloud Database services (targeting $20 billion in FY30)
• Whether additional financing requirements are minimized as expected