Goldman Sachs backs Oracle (ORCL.US): AI financing concerns may be exaggerated; risks of ongoing projects are controllable

According to news from Zhitong Finance APP, Goldman Sachs recently hosted an investor exchange event for Oracle (ORCL.US) in Los Angeles and San Francisco, attended by Oracle CEO Clay Magourky, CFO Hillary Maxson, and SVP of Investor Relations Bill Choi. Following the event, Goldman Sachs released a research report maintaining its "Buy" rating on Oracle, with a 12-month target price of $206, implying approximately 77.4% upside potential. Goldman Sachs believes Oracle demonstrates “exceptional operational agility” in data center construction, with good visibility on both supply and demand. Concerns in the market regarding its capital expenditure and financing gap may be overstated. Last week, the company completed $20 billion in debt and equity financing and clarified that no refinancing is needed in the current cycle of capital expenditures.

Financing Uncertainties Settled: $20 Billion Financing Completed, No Further Funds Needed This Cycle

One of the main topics of interest for Goldman Sachs during this visit was the funding source for Oracle’s data center expansion. The report pointed out that Oracle had completed $20 billion in debt and equity financing last week and indicated that no additional capital is needed for the current capital expenditure cycle—this judgement is not an empty promise, but based on the company’s clear internal assessments of various customer contract models and pre-emptive downside scenario stress tests.

Goldman Sachs particularly noted that the three contract models provided by Oracle at Investor Day could reduce upfront capital expenditures by 50%. The company stated that, due to a supply-constrained industry environment, even providing flexibility in client deployment models does not need to come at the expense of profitability, and the unit economics of each model remain attractive. In Goldman Sachs’ view, this means Oracle’s financing rhythm is “carefully calculated,” rather than reactive.

Data Center Construction: 7GW Projects Under Construction Are Low Risk, New Projects May Go Overseas

Addressing market concerns regarding the progress and permitting risks of U.S. data center construction, Oracle’s response was quite direct. The company stated that anyone surprised by the challenges of building data centers "is probably not accustomed to constructing data centers." Oracle indicated it detected shifts in the political environment more than a year ago and has designed flexible plans at regional, state, and national levels.

Goldman Sachs cited management as saying that all 7GW of capacity planned to go live in the next two years are signed and under construction, with a very low likelihood of permits being revoked. Goldman Sachs believes the only real risk lies with the New Mexico project—which still requires an air permit to reach full capacity, but Oracle already has alternatives in place. Furthermore, if a data center cannot be built, the contract structure means Oracle has no compensation liability; management also noted that delays reported in the news differ from delays already considered in the company’s internal base-case planning. In the medium term, Goldman Sachs expects new projects to increasingly shift overseas, including South America, Southeast Asia, and Australia.

Demand Side: Significant Enterprise Penetration Room, 2027 May Bring Re-rating Catalysts

On the issue of AI end-user demand, Oracle emphasized that the potential for enterprise-level proliferation is far from fully unleashed. The core of its application strategy is to transform cutting-edge models and other foundational technology components into applications that enable people to accomplish work. Goldman Sachs specifically mentioned the Oracle Fusion suite: Phase I AI productivity has already been integrated into products, and Phase II will be gradually realized with more transformative processes such as AR reconciliation; robots may become a new engine for token generation and application business growth in the next phase.

Goldman Sachs outlined three re-rating catalysts for 2027: first, clearer judgments on which data center projects may be adjusted due to changes in state and local policies; second, significant inflection points for OCI gross profit and cash flow over the next 4 to 8 quarters; and third, at an industry level, greater visibility into the demand function for tokens—which includes a deeper understanding of feedback loops for frontier model training and inference, as well as the adoption of new intelligent workflows in areas such as ERP and vertical healthcare software.

Valuation and Risks: Watching Customer Concentration and FY30/31 Renewal

Goldman Sachs maintains its “Buy” rating for Oracle, with a 12-month target price of $206. Main risks identified in the report include: customer concentration risk, timing and execution risk in data center construction, heavy capital expenditure cycles and financing needs, as well as the risk of accelerated market share loss in databases/SaaS.

Regarding customer concentration and FY30/31 renewal, Oracle management stated: the harder it is to build data centers, the less likely clients are to build their own; memory remains a limiting factor. The company believes that frontier labs will expand capacity over the next five years, but it is unlikely that there will be gigawatt-level excess capacity in FY30/31 that would cause a drastic decline in Oracle's business.

On the topic of renewals, management’s position was clear: customer relationships are bidirectional, and the risks of concentrated contracts are symmetrical for both parties. Oracle emphasized that its primary task is to be a good partner to its customers; moreover, it believes competitors are likely to remain rational throughout the cloud computing cycle.