Oracle's Cloud and AI Growth: A Strategic Bull Case for 2026

Oracle's fiscal 2024 results have laid the groundwork for a compelling narrative: the company is on the cusp of a renaissance in enterprise technology, fueled by its cloud infrastructure dominance and an audacious AI strategy. With cloud revenue surging 25% year-over-year to $19.77 billion and its Stargate AI initiative gaining momentum, Oracle is positioning itself as a leader in the AI-driven cloud era. Here's why investors should take note—and why the stock could be undervalued by 50% or more.

The Cloud Infrastructure Surge: A Foundation for Growth

Oracle's cloud infrastructure (OCI) is no longer a sideshow—it's now the engine of growth. In its fiscal Q4, OCI revenue jumped 42% to $2.0 billion, while full-year growth hit 25%, driven by AI demand and partnerships with Microsoft and Google. But the real story is the trajectory: OCI grew 51% in Q2 of fiscal 2025 to $6.2 billion, signaling accelerating momentum.

The catalyst? A multibillion-dollar bet on data centers. Oracle is pouring $40 billion into its Texas facility—a 1-gigawatt hub powered by 400,000 NVIDIA GPUs—while expanding its “Stargate” AI infrastructure to 10+ countries, including a UAE sovereign cloud hub. This capacity buildout isn't just about scale; it's about owning the infrastructure needed to train the next generation of AI models.

Stargate: The AI Moonshot

Stargate isn't just a data center—it's Oracle's bid to become the AWS of AI. The project's 64,000-GPU cluster (using NVIDIA H100 and AMD MI355X chips) aims to dominate large-scale AI training and inference. Crucially, Oracle's AI Data Platform integrates private enterprise data with OpenAI models, creating a “much bigger opportunity” than mere training, as CEO Safra Catz noted.

But the ambition doesn't stop there. Stargate's “for Countries” initiative is targeting sovereign AI infrastructure deals, with the UAE hub alone expected to generate recurring demand for Oracle's cloud and NVIDIA's GPUs. The financial upside? Analysts project Stargate could add $20 billion in annual revenue for Oracle and $250 billion over time for Oracle and its partners.

The Financial Case: RPO, Margins, and a Bullish 2026

Oracle's financials are underpinning its growth story. Remaining Performance Obligations (RPO)—a key metric for future revenue—surged 44% to $98 billion in fiscal 2024 and hit $130 billion by Q2 2025. This reflects sticky customer contracts and long-term cloud commitments. Meanwhile, gross margins for cloud services are improving by 9% annually, thanks to automation in its Autonomous Database, which cuts labor costs by half.

The fiscal 2026 outlook is audacious: Oracle aims for $66 billion in total revenue, with cloud infrastructure growth hitting 70% as Stargate scales. Even if execution risks—like supply chain delays or margin pressures from OCI's lower margins—are real, the long-term tailwinds are undeniable.

Why $180 Is the Floor—and $250 the Ceiling

Mizuho's $180 price target for Oracle isn't a guess; it's anchored in the math. At current valuations, Oracle trades at 16x forward earnings, well below its historical average. If Stargate delivers on its $66 billion revenue target and RPO continues to climb, the stock could re-rate aggressively. Longer-term, analysts see a $250 price target by 2028, assuming 20% annual growth by 2027.

Investors should also note Oracle's capital allocation: $16 billion in FY2025 CapEx is steep, but it's going directly into high-margin assets like the Texas facility. Meanwhile, the dividend—now $0.40 per share—remains a reliable cash return mechanism.

Risks and Reality Checks

No bull case is risk-free. OCI's margins lag SaaS and could compress further as Stargate's upfront costs hit. Delays in sovereign cloud deals—like the UAE hub's U.S. security hurdles—could slow revenue. And hyperscalers like AWS and Azure are doubling down on AI, making competition fierce.

But here's why Oracle wins: its hybrid cloud partnerships (e.g., Azure-integrated OCI data centers) and AI Blueprints (e.g., healthcare tools via Soley Therapeutics) create “sticky” revenue streams. Meanwhile, NVIDIA's GPU sales—critical to Stargate—are undervalued themselves, implying a symbiotic upside for both companies.

The Bottom Line: Buy the Dip, Hold the Trend

Oracle is no longer a legacy software relic—it's a cloud and AI powerhouse. The stock's 200-day moving average holds at $150, and dips below that level present buying opportunities. While short-term volatility is inevitable, historical backtests from 2020 to 2025 show that when Oracle's revenue beat quarterly estimates and investors held the stock for 30 days, the strategy delivered an average return of 43.43%. However, this came with a maximum drawdown of -44.99% and volatility of 20.27%, underscoring the need for risk-aware investing. The Sharpe ratio of 0.40 suggests moderate risk-adjusted returns, balancing potential gains against significant downside risk. Investors with a 3–5 year horizon should consider adding exposure here.

The path to $180 is clear. The question is: How high can Oracle soar once Stargate's full potential is realized?