Goldman Sachs Maintains Buy Rating on Oracle; Accelerated Capacity Delivery Offsets High Capex Concerns

Overview

Goldman Sachs released a report analyzing Oracle's (ORCL) 4QFY earnings. Although the stock fell 10% post-earnings due to high capex guidance, the institution believes actual capital pressure is less than the headline numbers. Goldman Sachs maintains a Buy rating and raises the target price to $239, with the core thesis being Oracle's accelerating data center capacity delivery and effective transfer of capital burden through customer prepayments and BYOC structures, while AI infrastructure demand remains strong.

Core views

Financial Performance and Real Capital Pressure: 4QFY total revenue was broadly in line, with IaaS revenue beating by 2% and growing 93% YoY; SaaS revenue slightly missed by 1%, growing only 9% YoY. Addressing market concerns over FY27 capex guidance of $90-95 billion, Goldman Sachs notes actual net cash spending is ~$70 billion. This is due to $20-25 billion in customer prepayments, which successfully shift part of the capital burden to clients, making the underlying cash position better than book figures suggest. Capacity Delivery and AI Demand Surge: Oracle's RPO surged to $638 billion, up 363% YoY, strongly supported by large AI infrastructure contracts, with customer concentration broadening (four customers committed over $8 billion each in the quarter). On capacity construction, data center sites like Abilene are delivering smoothly, with over 40% of capacity delivered, and a step-change in available computing power is expected in the coming months. Current global GPU utilization is 97.5%. Margin Outlook and Business Extension: In the near term, new data centers coming online and ramping up to full utilization will pressure gross margins (down 5 percentage points in FY26), but margins are expected to improve as contract revenue stabilizes (target 30-40%). Additionally, SaaS has launched new token- and outcome-based agent consumption pricing models; database revenue grew 29%, and multi-cloud related revenue surged 400%, indicating a key moat in the scaling phase of AI inference.

Analysis framework

In analyzing Oracle's asset-heavy expansion, Goldman Sachs did not focus solely on headline capex figures but delved into the capital structure. By stripping out 'customer prepayments' and 'BYOC agreements,' the firm restored the real balance sheet pressure. At the same time, the institution combined the explosive growth of RPO with specific data center delivery timelines to validate the certainty of converting AI computing demand into actual financial revenue, thereby raising forward earnings forecasts.

Methodology notes

• Company Fundamentals and Financial FrameworksFree cash flow analysis

  Distinguish between book capex and net cash spending

  When assessing capital pressure for asset-heavy tech companies, look beyond total capex on the income statement. By deducting 'customer prepayments,' the report calculates the actual net cash outlay the company must bear, enabling a more accurate assessment of free cash flow and financing needs.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Matching computing capacity delivery with order backlog

  In the AI infrastructure industry, the key current tension is often on the supply side. The report uses surging RPO as evidence of demand and progress at data center sites as evidence of supply, assessing the pace of revenue realization through their alignment.

Asset mapping & comparison

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

• Oracle Corp. (ORCL.US)

  Core covered entity, benefiting from AI infrastructure demand surge and cloud business growth

  Strengths

  Supported by large AI infrastructure contracts; effectively alleviates capital pressure through prepayment model; multi-cloud database business growing rapidly.

  Weaknesses

  Short-term gross margin pressure from data center expansion; relatively slower SaaS growth.

  Risks

  Customer concentration risk; timing and execution risk of data center construction; high capex cycle; accelerated market share loss in database/SaaS.

Key data

• IaaS Revenue Growth93%YoY growth, beat by 2%
• FY27 Capex$90-95 billionBook guidance, net spending after prepayments ~$70 billion
• RPO (Remaining Performance Obligations)$638 billionUp 363% YoY, reflecting strong forward demand
• Global GPU Utilization97.5%Indicates tight computing resource supply

Impact & implications

Oracle's heavy asset investment in AI infrastructure is entering a phase of capacity release. The successful application of the customer prepayment model validates the company's strong bargaining power in the AI computing market and provides a reference for peers on how to balance high capex with financial health. As computing supply increases, the enormous backlog of orders will gradually convert into actual revenue.

Risks

• Customer concentration risk
• Timing and execution of data center construction falling short of expectations
• Sustained high capex investment cycle
• Accelerated market share loss in database and SaaS markets

What to watch

• Actual delivery progress of data center capacity (e.g., subsequent delivery milestones at Abilene and other sites)
• Efficiency of converting new computing capacity into RPO and final gross margins
• Confirmation of peak capex inflection point in FY27 and beyond