Oracle Stock Forecast: Analyzing the Potential for Growth in the Upcoming Year

Cloud computing giant Oracle (ORCL -1.21%) has seen remarkable growth over the past year, with its stock price increasing by over 48%. This is a significant achievement, especially when compared to the Nasdaq Composite index, which only gained 25% during the same timeframe (as of now). The surge in Oracle's stock is mainly attributed to the booming demand for cloud infrastructure, particularly for managing artificial intelligence (AI) workloads.

Despite this impressive rise, Oracle's stock is becoming quite expensive. It is currently trading at 45 times its trailing earnings, whereas its five-year average earnings multiple is around 24. This elevated valuation raises some concerns about the potential for future gains.

Looking ahead, analysts are not overly optimistic. The stock carries a median 12-month price target of $205, as set by 39 analysts. This projection represents a mere 11% increase from the current stock price.

While the limited upside might deter some investors, there is still a chance for Oracle to outperform these expectations and deliver more significant returns in the upcoming year. Let’s explore why that might be the case.

Growth Through Capacity Expansion

The demand for cloud infrastructure, particularly for AI model training and inferencing, is expanding rapidly. Research firm Gartner estimates that the global infrastructure-as-a-service (IaaS) market was valued at $140 billion in 2023, predicting exponential growth driven by the deployment of generative AI applications in the cloud.

In fact, Goldman Sachs foresees IaaS revenue skyrocketing to $580 billion by 2030. This substantial growth potential has already energized Oracle's cloud infrastructure division, which reported a 52% year-over-year increase in IaaS revenue, reaching $2.4 billion in the second quarter of fiscal 2025 (ending November 30, 2024).

However, Oracle faced certain capacity constraints that impacted its ability to meet demand, especially for cloud infrastructure backed by graphics processing units (GPUs) from companies like Nvidia.

To address these challenges, Oracle is significantly expanding its cloud capacity worldwide. Currently, it operates 17 cloud regions globally and plans to add another 35 regions in partnership with major cloud service providers such as Microsoft, Amazon, and Google.

Additionally, Oracle has entered a joint venture with SoftBank, OpenAI, and Abu Dhabi-based AI investment vehicle MGX to establish 20 AI data centers in the U.S. The total investment planned for this AI infrastructure is set to reach $100 billion initially, potentially scaling up to $500 billion over the next four years.

This expansion into cloud capacity positions Oracle to capture a larger share of the lucrative IaaS market by the end of the decade. Furthermore, Oracle's robust revenue pipeline bodes well for impressive growth in the near future.

Management recently reported remaining performance obligations (RPO) of $97 billion in the second quarter of the fiscal year, a remarkable 49% increase from the previous year. Analysts therefore forecast revenue growth accelerating from 9% in fiscal 2025 to 12.5% in fiscal 2026. This growth is also expected to translate into improved earnings, projected to rise 14% in the next fiscal year to $7.03 per share, following a 10.7% increase in the current fiscal year.

Analyzing Potential Upside for Investors

Oracle's elevated valuation is a key factor to consider, as the stock reached higher levels following its impressive gains. However, its substantial RPO offers a potential justification for this valuation, as it reflects the value of contracts that are yet to be fulfilled but are expected to contribute to future revenue.

If Oracle succeeds in achieving earnings per share of $7.03 in fiscal 2026 and maintains a valuation of 33 times earnings—similar to the earnings multiple of the Nasdaq-100 index—its stock price could potentially reach $233. This would represent a significant gain of 26% from the current levels.

Thus, it is plausible that Oracle's stock may outperform the consensus price target despite its current valuation. For investors seeking exposure to an AI-focused stock, Oracle still presents a compelling investment opportunity with the potential for greater gains.

Oracle, Stock, Growth