Shares of Oracle have come under sustained pressure in recent months as investors worry about heavy spending on artificial intelligence infrastructure.
However, analysts at Bernstein argue that the company’s strategy is likely to deliver significant long-term gains.
The stock has fallen nearly 60% from its all-time high in September last year, reflecting concerns that aggressive investments in data centres could weigh on free cash flow and profitability.
However, Bernstein maintained an outperform rating and a $319 price target, suggesting that markets may be overlooking Oracle’s evolving growth profile.
The target reflects an over 127% upside to Oracle’s current price level of $140.
AI investment raises concerns
Investor scepticism has largely focused on Oracle’s shift toward infrastructure-as-a-service, where the company is building out capacity to support AI workloads.
This transition has prompted concerns about rising capital expenditure and the potential for lower margins compared to its traditional software business.
Some investors have also questioned whether Oracle’s cloud model, which includes supplying compute capacity to customers such as OpenAI, can sustain profitability over time.
However, Bernstein analyst Mark Moerdler said the underlying economics are stronger than perceived.
“Oracle’s economics are better than we thought,” he wrote, adding that the company is emerging as a key beneficiary of the AI build-out.
He added, “We think Oracle should be one of the go-to investment names given its AI data centre business and its core database business.”
Capex requirements seen manageable
Bernstein estimates that Oracle will require between $15 billion and $20 billion in additional capital by fiscal 2028 to complete its existing infrastructure commitments, significantly lower than some market expectations.
The company is also expected to turn free cash flow positive by fiscal 2030, once the current phase of accelerated investment tapers off.
Moerdler said that after this build-out phase, free cash flow is likely to recover sharply.
Free cash flow should “substantially bounce back,” he noted, projecting that it could reach as much as $212 billion annually by fiscal 2035.
Oracle has already outlined plans to raise up to $50 billion in debt and equity to fund its capital expenditure needs this year.
According to Bernstein, this funding will be sufficient to support operations through 2029.
The analyst also pointed to improved confidence in customer demand, noting that OpenAI’s recent $110 billion funding round helps ease concerns about its ability to meet long-term commitments.
Long-term growth drivers remain intact
While Oracle’s infrastructure business may carry lower margins than its software segment, Bernstein said the company’s integrated hardware and software capabilities could act as a competitive moat.
The ability to provide specialised solutions, including sovereign cloud offerings for governments, could open up higher-margin opportunities over time.
“With the valuation having taken a substantial cut, we believe the upside potential far outweighs the downside risk,” Moerdler said.
Other brokerages have also turned constructive.
Bank of America recently reinstated coverage with a buy rating and a $200 price target, highlighting Oracle’s positioning in the fast-growing AI and cloud markets.
Analyst Tal Liani described the company as “a giant going all-in on AI infrastructure and the cloud,” underlining the scale of its ambitions.
As the AI investment cycle progresses, analysts say Oracle’s strategy may shift from being seen as a near-term risk to a key driver of long-term value creation.
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