Oracle Corp: BUY Maintained with Target Price of US$225 as Positive Free Cash Flow Comes into Sight November 11, 2026

Brief Overview

Oracle held its Investor Day on 28 October 2026 as part of AI World in Las Vegas, outlining a path to positive free cash flow (FCF) from FY29e. The company targets 10GW of data centre capacity by end-FY28, with FCF expected to turn positive in the second half of FY28 as the infrastructure build-out matures. Phillip Securities Research maintains a BUY recommendation with an unchanged target price of US$225, retaining FY27-31e estimates. We forecast US$255 billion in FY31e revenue, representing a 30% five-year compound annual growth rate (CAGR), driven by Oracle Cloud Infrastructure (OCI) capacity deployment and conversion of the US$664 billion remaining performance obligation (RPO).

Investment Positives

Positive Free Cash Flow from FY29e

Management expects FCF to turn positive in the second half of FY28e, with Oracle becoming self-funded from FY29e as peak FY27-28 capital expenditure eases. We forecast US$4 billion in FCF for FY29e. The inflection follows the major infrastructure build-out, with Oracle targeting 10GW by end-FY28 (May 2028), including over 7GW of incremental capacity from an estimated current base nearing 3GW (a total of 1.2GW by end-FY26, 850MW in 1Q27, and the remainder in the current quarter).

Alternative Financing Easing Cash Requirements

Vendor financing, customer prepayments, and bring-your-own-hardware (BYOH) arrangements could reduce upfront cash needs by approximately 50%, limiting Oracle’s additional external funding requirement through FY30 to US$20 billion. By way of illustration, vendor financing reduces the first-two-year capital requirement for a 1GW project from US$37 billion to US$18 billion, while BYOH could lower the requirement further to US$6 billion or less per GW, albeit at lower reported revenue but with higher margins and return on investment.

Improving Revenue Per GW

Oracle’s revenue per GW remains below Microsoft’s, but the gap should narrow through FY28-30e as new capacity ramps and the US$664 billion RPO converts into revenue. Despite a much smaller cloud revenue base, Oracle has a similarly sized backlog, offering greater catch-up potential if capacity is delivered and monetised as planned. As capital expenditure eases after FY28, higher revenue per GW translates into stronger FCF and improved infrastructure economics. We forecast a 55% increase in revenue per GW to US$17.5 billion in FY30e.

Spreading Deployment Risk

Oracle is reducing reliance on any single site or geography, with less than half of its eventual 10GW capacity in gigawatt-scale sites and the rest in smaller data centres globally. The 850MW delivered in 1Q27 was spread across 38 projects in 11 countries. OCI’s capacity fungibility helps mitigate utilisation risk — a 512-GPU cluster (64 nodes by 8 NVIDIA/AMD GPUs) can serve up to 32 customers, with capacity reallocated between customers within hours, achieving 98% GPU utilisation in 1Q27. Oracle is also diversifying accelerator availability across NVIDIA, AMD, Google TPU and other architectures rather than tying OCI exclusively to one compute architecture.

Monetising AI in Applications

Oracle is adding usage-based billing for AI consumption alongside SaaS subscriptions, creating growth beyond seat additions. Embedded AI agents should automate more ERP workflows rather than displace ERP, with fewer manual workflows and less traditional user interface interaction. Fusion, Oracle’s enterprise application suite, grew 14% year-on-year in 1Q27, faster than Cloud Applications at 10%. Use cases include automating finance ledger reconciliation and checking HR overtime discrepancies. Adoption is already meaningful, with 500 billion tokens consumed in September 2026 (up 23% month-on-month) and over 150 million embedded Fusion AI uses in 1Q27, though monetisation remains early as the pricing model was introduced only months ago.

Strong Revenue and Backlog

We expect US$255 billion in group revenue by FY31e, representing a 30% five-year CAGR, driven by OCI deployment and OpenAI backlog conversion. Over 90% of the US$664 billion RPO is tied to infrastructure. Customer concentration is declining, with over 1,000 OCI AI infrastructure customers now diversifying the backlog.

Investment Challenges

Temporary Margin Pressure

We expect near-term adjusted operating margin dilution from 43% in FY26 to 37% in FY28e, below historical levels. The pressure reflects the growing mix of lower-margin OCI, where AI infrastructure projects generate 35% gross margin and 34% operating margin, compared with the higher-margin SaaS and database businesses.

Early-Stage AI Monetisation

While AI adoption is scaling rapidly within Oracle’s application suite, monetisation remains early. The usage-based pricing model for AI consumption was introduced only months ago, and the extent to which it will contribute meaningfully to revenue in the near term remains to be seen.

Outlook

Margins should recover to approximately 40% by FY30 as data centres ramp up and capital expenditure eases. We forecast US$26.10 adjusted EPS in FY31e, implying a 27% five-year CAGR. The path to positive FCF from FY29e, combined with alternative financing structures that reduce upfront cash requirements by about 50%, supports the thesis that Oracle can achieve self-funded growth from FY29 onwards. Revenue diversification through a broadening customer base of over 1,000 OCI AI infrastructure customers should further strengthen the outlook.

Recommendation & Target Price

Phillip Securities Research maintains a BUY recommendation on Oracle Corp with an unchanged target price of US$225. FY27-31e estimates are maintained. The conviction is underpinned by the anticipated path to positive FCF from FY29e, the US$664 billion RPO providing revenue visibility, and improving infrastructure economics as capacity scales.

Frequently Asked Questions

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.