Goldman Sachs raises Oracle's target price to $320, reiterates "Neutral" rating

Goldman Sachs' research report pointed out that after the financial analyst meeting, it reiterated its "Neutral" rating on Oracle (ORCL.US) and raised the target price to $320, up from the previous target price of $310. The meeting discussions focused on the $300 billion contract with OpenAI, as well as unresolved economic benefits, timing, and financing issues; and clarified key matters, including that the gross margin for AI infrastructure deals is 30% to 40% (better than market concerns), demand exceeds OpenAI, and so far this quarter (Q2), four new non-OpenAI customers (including Meta (META.US)) have been added, bringing a total incremental contract value (TCV) of $65 billion, and management fully explained Oracle's competitive advantages from an architectural and operational perspective.

Goldman Sachs stated that Oracle guides for revenue to reach $225 billion by 2030 (with a compound annual growth rate of 31%), raising its Infrastructure as a Service (IaaS) revenue to $166 billion (up from the $144 billion forecasted two months ago), with an earnings per share target of $21 (with a compound annual growth rate of 28%). This outlook adds support to the bullish argument, expecting earnings per share growth to accelerate before the fiscal year 2028, peaking at over 50%, with nearly 30% growth still maintained in fiscal year 2029. In an optimistic scenario, based on a 30 times price-to-earnings ratio or 1 times price-to-earnings growth ratio, the stock price is expected to exceed $600 by 2030, but this requires a premium multiple and perfect execution.

Goldman Sachs believes that the risks for Oracle will increase after 2027 due to uncertainties in data center construction timelines, GPU technology cycles and pricing, energy costs, customer concentration, and large and long-term capital expenditures. Overall, Goldman Sachs appreciates Oracle's unique architecture (bare metal first, advanced networking technology, high-performance storage) and rapid expansion capabilities, along with the innovation in Oracle's application product portfolio (deploying over 600 AI agents). However, considering the need to achieve nearly fourfold growth in revenue and earnings per share during the fiscal years 2025 to 2030, the related financial and operational uncertainties lead Goldman Sachs to believe that the current risk and return are in a balanced state