Brief Overview
Oracle delivered a solid 1Q27 result that met expectations, with revenue rising 30% year-on-year, driven primarily by strong Cloud Infrastructure growth of 121%. The company expects group revenue to accelerate to 34% growth in FY27, compared to 16% in FY26, as cloud infrastructure deployment continues ramping up. Phillip Securities Research maintains a BUY recommendation whilst reducing the target price to US$225 from US$237.
Investment Positives
Accelerating Cloud Infrastructure Momentum
Oracle Cloud Infrastructure (OCI) revenue growth surged to 121% year-on-year in 1Q27, accelerating from 93% in the previous quarter. The company’s Stargate project is already generating revenue, with 6 of 8 buildings at the Abilene campus now operational, representing 618MW or 75% of planned capacity. This demonstrates that part of the OpenAI project has successfully transitioned from backlog into active revenue generation.
The company’s capacity deployment has accelerated significantly, delivering 850MW of compute capacity and over 300,000 GPUs in the quarter – nearly triple the prior quarter’s deployment pace. This rapid scaling indicates Oracle’s ability to capitalise on the strong AI demand environment.
Strong Demand Visibility Through RPO Growth
Oracle’s remaining performance obligations (RPO) continue to grow robustly, increasing US$26 billion in quarter-on-quarter to US$664 billion, despite the accelerating OCI revenue conversion. This growth pattern indicates that demand remains well ahead of available capacity, positioning Oracle favourably for sustained growth.
The company signed over US$30 billion of new AI contracts in Q1, supported by customer prepayments and alternative financing arrangements. Over the past three quarters, Oracle has secured US$105 billion in bookings under its new funding model, representing 16% of the total RPO. The RPO base is also becoming increasingly diversified, reducing concentration risk from OpenAI as the backlog expands.
Challenges
The report does not explicitly outline specific investment challenges or negative factors affecting Oracle’s business prospects.
Outlook
Oracle expects significant revenue acceleration, with group revenue projected to grow 34% year-on-year in FY27, compared to 16% in FY26. Cloud Infrastructure revenue is forecast to surge 109% to US$38 billion, accounting for 42% of total group revenue. The majority of the US$300 billion OCI commitment is expected to ramp from 2027, whilst a potential IPO could strengthen funding capacity. Earnings are expected to be backloaded into a stronger second half of FY27 on data centre ramp-up.
Recommendation & Target Price
Phillip Securities Research maintains a BUY recommendation for Oracle Corp with a DCF target price of US$225, reduced from the previous target of US$237. The target price reduction reflects a higher share count by approximately 100 million shares following Oracle’s recent At-the-Market equity issuance to fund its aggressive AI infrastructure and data centre expansion.
Frequently Asked Questions
Q: How did Oracle's Cloud Infrastructure perform in 1Q27?
A: Oracle Cloud Infrastructure revenue growth accelerated to 121% year-on-year in 1Q27, up from 93% in the previous quarter, driving overall company revenue growth of 30%.
Q: What is the status of Oracle's Stargate project?
A: Stargate is already being monetised with 6 of 8 buildings at the Abilene campus now operational, representing 618MW or 75% of planned capacity. The remaining two buildings are still under development.
Q: How much new AI contract value did Oracle secure in Q1?
A: Oracle signed over US$30 billion of new AI contracts in Q1, supported by customer prepayments and alternative financing arrangements.
Q: What is Oracle's current remaining performance obligations (RPO)?
A: Oracle's RPO increased by US$26 billion quarter-on-quarter to US$664 billion, indicating strong demand visibility ahead of available capacity.
Q: What revenue growth does Oracle expect for FY27?
A: Oracle expects group revenue to accelerate to 34% year-on-year growth in FY27, compared to 16% in FY26, driven by Cloud Infrastructure revenue surging 109% to US$38 billion.
Q: Why was Oracle's target price reduced despite the BUY recommendation being maintained?
A: The target price was lowered from US$237 to US$225 due to a higher share count by approximately 100 million shares following Oracle's recent At-the-Market equity issuance to fund AI infrastructure expansion.
Q: How much capacity did Oracle deploy in 1Q27?
A: Oracle delivered 850MW of compute capacity and over 300,000 GPUs in 1Q27, nearly triple the prior quarter's deployment pace.
Q: When is the majority of Oracle's OCI commitment expected to ramp up?
A: The majority of the US$300 billion OCI commitment is expected to ramp from 2027.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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