Oracle's Cloud Pivot: How RPO and Capital Allocation Signal a New Era of Growth

Oracle (ORCL) has long been a titan of enterprise software, but its recent financial results and analyst upgrades reveal a company undergoing a seismic shift toward cloud dominance. With a record $138 billion in remaining performance obligations (RPO) and a BMO Capital Markets upgrade to “Outperform,” Oracle's stock is now positioned as a compelling play on enterprise digitization. The question investors must answer: Is this a fleeting rally or a fundamental revaluation of Oracle's potential?

RPO: The Metric Driving Oracle's New Reality

RPO, a forward-looking metric representing contracted but undelivered services, has become the clearest indicator of Oracle's cloud transition. In its fiscal fourth quarter, RPO surged 41% year-over-year to $138 billion—$6 billion above consensus estimates and a stark rebuttal to skeptics who once dismissed Oracle's cloud ambitions.

BMO analyst Keith Bachman argues that RPO's 100%+ year-over-year growth trajectory (driven by OCI's 52% revenue jump and SaaS's 12% expansion) signals durable demand. “RPO isn't just a number—it's a cash-flow engine,” he notes. With Oracle guiding for RPO to grow more than 100% in fiscal 2026, investors can reasonably expect future revenue visibility to outpace current estimates.

The Cloud Growth Engine: OCI and SaaS Momentum

Oracle's cloud infrastructure (OCI) has emerged as its crown jewel. In fiscal 2025, OCI revenue hit $3.0 billion, up 52% year-over-year, while multi-cloud revenue soared 115% quarter-over-quarter. CEO Safra Catz emphasized that fiscal 2026 will see total cloud growth accelerate to over 40%, with OCI alone targeting 70% growth.

The SaaS segment, though slower, is stabilizing. Fusion Cloud ERP and NetSuite each hit $1.0 billion in revenue, growing 22% and 18%, respectively. Critically, Oracle's database business—its legacy cash cow—remains resilient, with database services revenue rising 31%. This hybrid strength (cloud + on-premise) allows Oracle to capitalize on enterprises' fragmented IT needs, a theme BMO calls “multi-cloud pragmatism.”

Valuation: A Discounted Growth Story?

Oracle's trailing P/E of 38.77 is 34% lower than SAP's 58.94 and just 10% higher than Microsoft's 35.41. This discount is perplexing given its superior cloud revenue growth (40%+ vs. Microsoft's 20% and SAP's 10%). Analysts at BMO argue the gap is irrational: “Oracle is priced for stagnation, not the cloud leader it's becoming.”

Consider this: Oracle's RPO per share ($138 billion / 11.2 billion shares ≈ $12.32) dwarfs its current stock price ($193). Even if RPO grows 50% over the next two years (a conservative estimate), the implied revenue runway could push valuation multiples higher. At BMO's $235 price target—implying 18% upside—the stock still trades at a 27x forward P/E, a discount to its growth peers.

Capital Allocation: Spending for the Future

Critics point to Oracle's rising CapEx—$25 billion in fiscal 2026 vs. $21.2 billion in 2025—as a red flag. Yet this spending is strategic: expanding OCI regions, upgrading data centers, and investing in AI-driven database tools. While free cash flow may dip temporarily (projected to be negative in 2025), the long-term payoff is clear.

BMO estimates operating income will grow 11% in 2026 and 14% in 2027, with OCI's scale advantages reducing marginal costs. Meanwhile, Oracle's dividend (yield 0.93%) and share buybacks remain disciplined, prioritizing growth over short-term payouts.

Risks and Counterarguments

• CapEx Overhang: High capital spending could strain margins, though Oracle's pricing power and RPO-driven revenue should offset this.
• Competition: AWS and Azure dominate the cloud market, but Oracle's enterprise focus (e.g., healthcare, finance) and hybrid solutions carve out a niche.
• Execution Risks: Legacy software sales could decline faster than cloud growth, though fiscal 2025 results show resilience.

Conclusion: A Must-Hold Tech Staple

Oracle's cloud transition is no longer a “what if”—it's a “how fast.” With RPO as its north star, Oracle is now a growth story with the scale and profitability to justify its valuation. At current prices, the stock offers a rare blend of momentum and affordability.

Investment Thesis:
- Buy: For investors seeking exposure to enterprise cloud adoption, Oracle's 40%+ cloud growth and undervalued multiple make it a core holding.
- Hold: For those wary of CapEx risks, wait for fiscal 2026 results to confirm margin resilience.
- Target: BMO's $235 price target is achievable if RPO growth meets or exceeds guidance.

Oracle's evolution isn't just about clouds—it's about redefining what a software giant can be in the AI era. This is a stock to own for the next decade, not the next quarter.