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Oracle Cloud Capex Estimates May Be Too Conservative: KeyBanc
ByAinvest
Friday, Oct 3, 2025 10:27 am ET1min read
Oracle's consensus estimates for cloud capex are too low, according to KeyBanc analysts. The conversion rate for cloud capex to next-year revenue has declined significantly for all major cloud providers, suggesting that Oracle's cloud capex estimates are underestimating its actual spending. KeyBanc predicts that Oracle's actual cloud capex will exceed consensus estimates, driven by strong growth in its cloud business.
According to KeyBanc analysts, the consensus estimates for Oracle's (NYSE: ORCL) cloud-related capital expenditures (capex) are too low. The conversion rate for cloud capex to next-year revenue has significantly declined for all major cloud providers, including Oracle. KeyBanc predicts that Oracle's cloud capex will exceed consensus estimates, driven by strong growth in its cloud business.Historically, the conversion rate for cloud capex to next-year revenue was high, with Azure and AWS seeing rates of 111% and 93% in 2016, respectively. However, this rate has declined to 35% and 36% for 2022, and the consensus estimate for Oracle in 2025 is 47%. KeyBanc, on the other hand, predicts that Oracle's cloud capex conversion rate will improve in the years ahead, reaching 28%, 39%, and 70% for 2026, 2027, and 2028, respectively. These estimates are significantly higher than the consensus for Azure and AWS, which range from 30% to 34% for the same period.
KeyBanc's estimates for Oracle's cloud capex are higher due to several factors. First, KeyBanc believes that the market consensus is not adequately reflecting Oracle's lease commitments. Oracle's finance lease obligations increased from zero at the end of fiscal 2024 to over $4B at the end of fiscal 2025. Additionally, there are over $100B in total lease commitments (both operating and finance) waiting to come on the balance sheet between FY26 and FY28. Second, KeyBanc estimates larger cloud capex than the market consensus, projecting Oracle's cloud capex in 2026 to reach $42.9B versus the consensus of $36.4B.
KeyBanc retains its Overweight rating and $350 price target on Oracle, reflecting its optimism about Oracle's cloud business and the potential for higher capex spending in the coming years.
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