Oracle shares are up 87% in 2025. Is it a buy?

Frank Lee | Morningstar

Key takeaways

• Oracle stock has surged this year, fueled by booming AI interest in its cloud products.
• Oracle Cloud Infrastructure and Oracle Cloud Applications will be the two cornerstones of Oracle’s revenue by 2030.
• While AI demand from the likes of OpenAI are a big driver of growth, execution risks remain.

When Oracle ORCL stock exploded higher this month, it was just the latest leg up in the venerable database company’s history. The catalyst this time around was news out of the company’s quarterly earnings report showing surging demand for its key cloud platforms and its sharply upgraded long-term outlook.

Oracle stock is up 87% this year, marking its best start to the year since 1989, when it rallied 108.91%. At $308, Oracle is trading at over six times its value compared with five years ago. The question for investors is whether those gains can be sustained and continued.

Morningstar equity analyst Luke Yang, who follows Oracle stock, says much will depend on the pace at which artificial intelligence companies continue to pour billions of dollars into data center construction, as well Oracle’s ability to quickly and efficiently build and run those centers as power costs and land availability issues grow. Not only that, but Oracle must manage the costs and financing for these data centers, which are key to the company’s Oracle Cloud Infrastructure business.

With the recent promotion of Clay Magouyrk, president of Oracle Cloud Infrastructure, and Mike Sicilia, president of Oracle industries, as co-CEOs, Yang predicts a deepening synergy between cloud infrastructure and applications. “We can agree that AI is a trillion-dollar market, and I wouldn’t be surprised if OpenAI and other LLM companies consume half a trillion worth of capacity from OCI over the next five years,” says Yang. “That said, that is a lot of work for Oracle to build out that much data center capacity.”

Oracle Stock Price

Source: Morningstar

Why has Oracle soared?

Oracle began 2025 trading at $166.64 per share, and it has since almost doubled in value. After its Sept. 9 earnings release, Oracle stock hit a record high of $328.33 before falling back.

Although Oracle stock has generally been on an uptrend since the start of 2023, its rally began to take off in June after its fiscal fourth-quarter earnings saw better-than-expected growth guidance for OCI. Oracle stock added to its gains in late July, after the announcement of its first major contract with OpenAI, tied to the Stargate project, wherein OpenAI agreed to pay $30 billion annually for five years to rent Oracle’s OCI capacity.

The most recent leg higher came this month, after Oracle revealed along with its fiscal first-quarter earnings that its performance obligations—contracts that have been signed but not yet fulfilled—rose to $455 billion, alongside long-term guidance that OCI revenue will grow from $18 billion in fiscal 2026 to $144 billion by fiscal 2030. “This has far exceeded market expectations,” says Yang, who originally forecast OCI’s 2030 revenue to be around one-third of what was announced. While Yang says some investors are skeptical of the guidance, he believes it’s reasonable.

Oracle outlook

Yang highlights OCI and Oracle Cloud Application as the key elements in the company’s long-term outlook, predicting the two businesses will account for over 85% of its revenue by fiscal 2030. The question now is how the two new co-CEOs will prioritize investments between the two businesses.

Meanwhile, the traditional side of Oracle’s business in database and enterprise resource planning is undergoing a shift from on-premises server and data center-oriented system to a cloud-based system, Yang says. “Oracle has a multicloud database offering under OCI, and they just launched it last year. We expect to see more customers moving their traditional database to multicloud database.”

However, Yang sees risks in Oracle’s traditional businesses that has led to its wide moat rating. “The company’s influence in the database industry has been slowly declining, especially given the recent rise of open-source and NoSQL options.” says Yang. While Oracle’s wide moat is still intact for now, the heavy expendituresrequired to build out the data centers can take a toll on the company’s return on invested capital if these new capacities do not get utilized in a timely manner, Yang says “If return on invested capital gets close to cost of capital, we may need to review Oracle’s moat rating. Both OCI and OCA are crucial to Oracle’s long-term development, although OCI is probably a bit more important now, given its sheer size.”

With the massive growth of OCI, Oracle’s profile looks more like those of other hyperscalers, such as Microsoft, Amazon, and Google. However, Yang notes that compared with those names, Oracle’s cloud infrastructure business should experience faster growth over the next few years, which would provide a tailwind for the stock.

How should investors approach Oracle shares?

Despite the overall positive trends for Oracle, Yang warns of uncertainties around its clients’ contractual obligations, along with the changing landscape of AI. “We think OpenAI and other AI companies should be able to cancel or modify the $455 billion of bookings in the future because the AI market is moving so fast, and it does not make sense for them to make a firm commitment for that much data center capacity years in advance,” he says. He notes that Oracle’s booking to revenue conversion will rely heavily on the future utilization of AI.

Yang also highlights execution risks facing Oracle. The company must rapidly build out new data centers to meet demand, which requires land, building, electricity, and GPUs that may not be fully secured even with help from Stargate partners like SoftBank and the US government. “That is a lot of work,” says Yang. He also forecasts three years of negative free cash flow and nearly $200 billion in new debt on top of the company’s existing $90 billion. “They need to get the new data centers into service as fast as possible to avoid further deterioration of its balance sheet quality.”

Oracle valuation

Trading at roughly $309 per share, Oracle stock is priced 6% below Yang’s $330 estimate of its fair value. Yang says investors should “expect more volatility as there is still much uncertainty around AI,” noting the Uncertainty Rating of High on the stock, which reflects a potential wide range of outcomes for the company’s results. But overall, “we think the stock is fairly valued if the company can deliver the revenue guided for OCI.”

Economic Moat

We think Oracle has a wide economic moat supported by high switching costs. Database systems and other enterprise software Oracle sells are critical to the day-to-day operation of modern enterprises. Companies tend to stay with the same vendor for years on the application side and even several decades for core systems to ensure optimal business continuity, which should keep Oracle’s return on invested capital above its cost of capital over the next 20 years, as it is a key player in these areas.

Fair Value and profit drivers

Our fair value estimate for Oracle is $330 per share, which implies a fiscal 2026 enterprise value/sales multiple of 15 times and an adjusted price/earnings multiple of 54 times. We expect Oracle’s annual revenue growth to accelerate to 28% over the next five years as the adoption of Oracle Cloud Infrastructure, or OCI, and Oracle Cloud Applications, or OCA, continues to tick up. Cloud should become Oracle’s key growth drivers and account for around 85% of the company’s revenue by fiscal 2031. Meanwhile, we expect a five-year CAGR of 69% for OCI and 9% for OCA. Total cloud revenue (OCI+OCA) should grow around tenfold over the next 10 years, surpassing $240 billion annually by fiscal 2035. As cloud services become the mainstream choice for customers, we model a low-single-digit revenue decline for both the license and hardware segments over the next decade. The services segment should fare better with low-single-digit revenue growth as customers continue to rely on Oracle for data infrastructure consulting services.

Risk and Uncertainty

We give Oracle a High Uncertainty Rating due to potential challenges during its cloud transition and intensified competition among database products, which brings increased uncertainty to our revenue forecasts.

ORCL Bulls say

• Scaling of Oracle Cloud Infrastructure has helped retain customers, port workloads to the cloud, and create new cloud service revenue, all of which should continue in the coming years.
• Oracle’s relational database should be able to keep its market leadership as customers continue to depend on its quality features, such as data partitioning which brings incomparable load-balancing efficiency.
• OCI was built with flexibility and ease-of-use in mind, which could bring a significant base of first-time Oracle users to the company. Artificial Intelligence demand should boost growth further.

ORCL Bears say

• Oracle could suffer below-average growth as customers are prompted to select specialized database software that runs their workloads more efficiently.
• The scale of Oracle Cloud is much smaller than the leading hyperscalers, putting them at a disadvantage cost-wise.
• Oracle’s balance sheet is among the most leveraged within our software coverage, which could limit operational flexibility and future acquisition opportunities.

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