Why Oracle and Amazon Are Undervalued AI Infrastructure Powerhouses Amid Sector Volatility

The AI infrastructure sector is at a pivotal inflection point, marked by both explosive growth and mounting valuation risks. As the "Magnificent 7" tech firms dominate global AI investment, companies like Oracle and Amazon Web Services (AWS) are emerging as critical enablers of the AI revolution. Despite recent market volatility-driven by concerns over overvaluation and infrastructure shortfalls-both firms are strategically positioned to capitalize on long-term demand for AI compute, cloud services, and enterprise solutions. Deutsche Bank's analysis underscores their resilience, suggesting that current selloffs may present compelling entry points for patient capital.

Oracle: A Chip-Neutral Powerhouse with Explosive AI Growth

Oracle's AI infrastructure strategy is defined by aggressive capital allocation, strategic partnerships, and a "chip-neutral" approach that prioritizes flexibility over vertical integration. In Q4 2025, the company reported cloud infrastructure revenue of $4.1 billion, a 68% year-over-year increase, while remaining performance obligations (RPO) surged to $523 billion-a 438% jump from the prior year. This growth is fueled by multi-billion-dollar contracts with clients like Meta and Nvidia, as well as Oracle's OpenAI partnership, which Deutsche Bank argues could generate $31 billion in free cash flow by 2030 even in a bear-case scenario.

Oracle's financials reflect its commitment to AI dominance. Capital expenditures are projected to reach $50 billion in FY2026, with the company leveraging creative financing strategies such as customer-installed chips and supplier leasing to mitigate debt risks. While its P/E ratio of 46.69 and PEG ratio of 4.1 appear lofty, Deutsche Bank and HSBC argue that the stock's current valuation fails to account for its long-term AI-driven revenue streams. For instance, Oracle anticipates AI-specific cloud commitments will generate 30%–40% gross margins, with cloud services expected to represent over half of total revenue by 2027.

Amazon AWS: Scaling AI Infrastructure Amid Profitability Challenges

Amazon's AWS remains the gold standard in cloud infrastructure, but its AI ambitions come with trade-offs. In Q2 2025, AWS revenue hit $30.9 billion-a 17.5% year-over-year increase-while capital expenditures soared to $31.4 billion, largely driven by AI investments. However, margins dipped to 32.9% as AWS prioritizes scale over short-term profitability. Deutsche Bank highlights a structural risk: a projected $800 billion shortfall between AI revenues and the computing infrastructure required to sustain growth. For AWS, this means balancing heavy AI spending with margin preservation-a challenge exacerbated by recent service outages that tested customer trust.

Despite these headwinds, AWS's ecosystem advantages remain formidable. Its integration with open-source communities and domain-specific AI models-such as those used by startups like Boosted.ai-demonstrate its ability to optimize costs and deliver scalable solutions. Deutsche Bank acknowledges AWS's role in propping up the U.S. economy but warns that long-term sustainability hinges on managing the AI infrastructure gap. For investors, AWS's recent 11% stock decline following mixed Q4 results may signal an undervalued opportunity, particularly as AI adoption accelerates across industries.

Strategic Positioning: Oracle's Differentiation vs. AWS's Ecosystem Dominance

Deutsche Bank's comparative analysis reveals stark contrasts in Oracle and AWS's AI strategies. Oracle's focus on embedding AI directly into its cloud infrastructure-via partnerships with OpenAI, Nvidia, and AWS itself- creates a "data-native" ecosystem where intelligence is inherent rather than bolted on. This approach, combined with its chip-neutral policy and interoperability across multiple cloud platforms, positions Oracle to capture enterprise workloads that demand agility and integration.

AWS, meanwhile, leverages its first-mover advantage in cloud services to dominate AI infrastructure. Its recent collaboration with Oracle allows customers to deploy Oracle Autonomous Database on AWS, blending Oracle's enterprise expertise with AWS's scalability. However, AWS's broader service portfolio introduces complexity, with Deutsche Bank noting that its implementation challenges and limited open-source integration could hinder adoption in niche markets.

Valuation Risks and Long-Term Upside

The AI sector's volatility is no secret. Deutsche Bank's survey found 57% of investors fear a valuation crash in 2026, driven by waning enthusiasm for AI hype. Yet both Oracle and AWS appear insulated from near-term risks. Oracle's RPO of $523 billion and AWS's $30.9 billion Q2 revenue underscore their ability to weather short-term corrections. For Oracle, Deutsche Bank's $375 price target implies a 30% upside from current levels, while AWS's 17.5% revenue growth suggests resilience in a slowing economy.

Conclusion: Patient Capital for AI's Next Phase

The AI infrastructure boom is far from over, but it demands a nuanced approach to valuation. Oracle's strategic agility and AWS's ecosystem dominance make them indispensable to the AI buildout, even as sector-wide risks loom. For investors, the recent selloffs in both stocks-driven by short-term concerns rather than fundamental weaknesses-present opportunities to capitalize on long-term growth. As Deutsche Bank notes, the $800 billion infrastructure shortfall will require sustained investment, and Oracle and AWS are uniquely positioned to lead the charge. In a market where patience is rewarded, these two giants offer a compelling case for undervalued, AI-native exposure.