Financing dilution risk is broadly manageable; maintain Buy rating on Oracle and USD 300 target price

Overview

This report focuses on the sources and timing of funding required for Oracle's cloud infrastructure expansion. Investors are most focused on the progress of ATM equity issuance, the structure of new FY27 financing, and FY28 capital needs. Keeping operating assumptions unchanged, Deutsche Bank conducts sensitivity analysis on the debt and equity financing mix, equity issuance price, FY30 earnings per share, and valuation multiples, while maintaining a positive view on the company's long-term fundamentals.

Core views

Oracle's long-term business outlook is still viewed positively, with the current debate centered mainly on financing rather than demand. The company must strike a balance between supporting large-scale cloud infrastructure construction, fulfilling approximately USD 600 billion of contract backlog, and maintaining an investment-grade credit rating. Management previously indicated that FY27 funding needs would be met through a combination of debt and equity, and the report believes equity could account for a meaningful proportion; FY28 has a wider range of outcomes because operating cash flow, capital expenditure, and the capital plan have not yet been clarified. Even under the pessimistic assumption that roughly USD 80 billion of incremental FY27-FY28 financing comes entirely from equity, the valuation sensitivity analysis still shows that the additional downside risk from the financing structure itself is relatively limited.

Analysis framework

The report first estimates FY27-FY28 incremental financing needs based on the company's capital plan, gross capital expenditure, and customer prepayments, then sets different debt and equity proportions as well as two equity issuance prices of USD 150 and USD 100 per share to calculate the corresponding changes in FY30 earnings per share and P/E ratios. It then multiplies FY30 earnings per share under each scenario by the corresponding P/E ratio and discounts the implied share price to the present using a 12% cost of equity, deriving an implied share-price range.

Methodology notes

• Scenario and sensitivity analysisFinancing structure sensitivity analysis

  Holding other conditions constant, adjust the debt proportion, equity proportion, and equity issuance price within incremental financing to assess the impact of potential dilution on earnings per share and valuation.

  The base case assumes that after completion of the USD 20 billion ATM program, all remaining incremental capital is raised through debt financing; the bearish case assumes that roughly USD 80 billion of incremental FY27-FY28 financing is raised entirely through equity, using average issuance prices of USD 150 and USD 100 per share, respectively.

• Valuation analysisForward EPS and P/E discounted valuation

  Multiply FY30 scenario earnings per share by the corresponding P/E ratio and discount the implied share price to the present.

  The report uses a 12% cost of equity to discount the FY30 implied share price to present value, in order to compare current fair share prices under different combinations of financing structures and valuation multiples.

Asset mapping & comparison

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

• ORCL.US

  Directly covered target of the report

  Strengths

  Approximately USD 600 billion of signed customer contracts provides strong demand visibility for cloud infrastructure expansion; long-term business fundamentals and targets continue to receive positive assessment from the analyst; the USD 300 target price implies significant potential upside relative to the current price.

  Weaknesses

  Cloud infrastructure construction requires massive upfront capital, recent free cash flow and the balance sheet are under pressure, and transparency around FY28 financing size and structure is insufficient.

  Comparison

  The base case relies mainly on debt financing after completion of the ATM program, resulting in lower equity dilution; the all-equity scenario would reduce earnings per share, but the report calculates that its additional negative impact on the long-term implied share price remains relatively limited.

  Risks

  Large-scale equity issuance at low prices, pressure on the investment-grade rating, higher-than-expected capital expenditure, insufficient customer prepayments, and cloud infrastructure construction or contract fulfillment falling short of expectations.

Key data

• Signed customer contract backlogapproximately USD 600 billionThe core demand support for cloud infrastructure expansion and the main backdrop for financing needs.
• Subsequent FY27 financing needapproximately USD 20 billionPart of the announced FY27 capital plan; the financing mix may include both debt and equity.
• Base estimate of FY28 incremental capital needapproximately USD 40 billionBased on roughly USD 120 billion of gross capital expenditure and an assumption of customer prepayments similar to the current year, the report believes this estimate may be near the high end of the demand range.
• Customer prepayment assumptionUSD 20 billion to USD 25 billionUsed to estimate FY28 external capital needs.
• FY27-FY28 incremental financing scenario sizeapproximately USD 80 billionUsed to compare the scenario of all-equity financing with the scenario in which, after completion of the ATM program, all remaining funding is raised through debt financing.
• CY28E P/E ratioBase case 10.7x; all-equity, USD 150 issuance price 11.5x; all-equity, USD 100 issuance price 12.4xReflects the impact of different equity issuance prices and dilution levels on earnings valuation.
• Target price and current priceTarget price USD 300.00; current price USD 144.39Current price as of August 5, 2026, implying upside of about 107.8%.

Impact & implications

In the short term, financing progress and structure may continue to dominate Oracle's share-price performance and temporarily overshadow discussions of business fundamentals and long-term growth. If the company can complete ATM issuance at reasonable prices, maintain its investment-grade rating, and improve transparency around FY27-FY28 cash flow and capital plans, the discount from financing uncertainty is likely to narrow. Conversely, if a large amount of stock is issued when the share price is low, customer prepayments fall short of expectations, or capital expenditure rises further, EPS dilution and valuation pressure will increase.

Risks

• Actual FY27-FY28 capital needs may be higher than current estimates, especially if capital expenditure increases further or operating cash flow is below expectations.
• If the equity issuance price is close to USD 100 per share and the equity proportion is high, the number of new shares and EPS dilution will increase significantly.
• If the company relies more on debt financing, rising leverage may threaten its primary goal of maintaining an investment-grade credit rating.
• If customer prepayments are below the USD 20 billion to USD 25 billion assumption, the external financing gap may widen.
• Delivery of the approximately USD 600 billion contract backlog requires large-scale infrastructure construction, and risks exist around construction progress, execution capability, and realization of customer demand.
• Valuation results depend on assumptions such as FY30 earnings, P/E ratio, and a 12% cost of equity; actual results may deviate significantly from the scenario calculations.

What to watch

• Issuance size, average price, and completion progress of the ATM program in the F1Q results disclosure.
• The specific debt and equity proportions and timing of the approximately USD 20 billion of subsequent FY27 financing.
• Credit rating agencies' views on additional debt and the company's investment-grade rating.
• FY28 operating cash flow, gross capital expenditure, and formal capital plan guidance.
• Whether customer prepayments can reach the USD 20 billion to USD 25 billion assumption.
• Cloud infrastructure construction progress and the pace at which the approximately USD 600 billion contract backlog converts into revenue and cash flow.