Oracle's Cloud Surge: RPO Momentum and OCI's Inflection Point Fuel a Strategic Buy

Oracle's cloud transformation has reached a pivotal juncture, with its Remaining Performance Obligations (RPO) surging to record highs and strategic moves like its AWS partnership positioning the company for explosive growth. Analysts at Jefferies now see a $200 price target, up from $190, as Oracle's cloud infrastructure (OCI) approaches an inflection point. This article dissects the catalysts—RPO momentum, Stargate's untapped potential, and easing capacity constraints—that justify a Buy ahead of H2 2025.

The RPO Growth Engine: A 40% Trajectory

Oracle's RPO—a metric reflecting contracted but unearned revenue—has become the bellwether of its cloud ambitions. In Q4, RPO is projected to hit $137 billion, a 40% sequential jump from prior quarters. This growth is underpinned by robust demand for cloud services:
- IaaS revenue rose 51% YoY in the latest quarter, fueled by AI-driven infrastructure contracts (e.g., $3 billion in GPU agreements).
- MultiCloud partnerships with AWS, Microsoft, and Google are unlocking new markets. Oracle's cloud regions now number 162 globally, with 800-megawatt AI facilities in development.

Jefferies' proprietary survey of Oracle partners underscores this momentum: 65% met or exceeded Q4 targets, while 45% noted pipeline improvements. Yet, even this optimism may understate Oracle's potential.

Stargate and Capacity: The Missing Pieces

A critical wildcard is Stargate, Oracle's project to unify its databases across cloud providers. While excluded from current guidance, Stargate's success could supercharge revenue by making Oracle's tools seamlessly accessible across AWS, Azure, and Google Cloud.

Current bottlenecks, however, temper near-term growth. 60% of partners cite OCI capacity constraints, which Jefferies expects to ease by Q1 2026. Once resolved, OCI's IaaS growth could surpass 50% in FY25, with even faster expansion in FY26 as new datacenters come online.

OCI's Competitive Edge and Backlog Conversion

Oracle's OCI is no longer a niche player. Its $2.2 billion IaaS revenue in Q1 reflects a shift from legacy software to hybrid cloud dominance. Key advantages include:
- MultiCloud integration: AWS customers will soon access Oracle's Exadata and Version 23ai databases, broadening its reach.
- AI infrastructure: NVIDIA GPU clusters in its largest datacenters are primed to capitalize on enterprise AI adoption.

The backlog-to-revenue conversion ratio is critical. With $137 billion in RPO, even a modest 10% annual conversion would add $13.7 billion to revenue—yet Oracle's track record suggests higher rates are achievable.

Valuation and Dividend: A Premium Worth Paying?

Oracle trades at a 31x 2026 P/E, a premium to its cloud peers (AWS: ~30x, Microsoft: ~28x). Skeptics argue this overvalues a stock up just 4% YTD while Microsoft and IBM surged 12% and 22%, respectively.

But two factors justify the multiple:
1. Dividend resilience: A 25% dividend hike to $0.50/share offers a 1.7% yield, a rare anchor in volatile markets.
2. Secular cloud demand: Global cloud spending is projected to hit $1.1 trillion by 2027, with enterprises increasingly adopting hybrid solutions—a space Oracle dominates.

Investment Thesis: Buy Now, Harvest in H2 2025

The catalysts are clear:
- H2 2025 inflection: Capacity constraints easing, Stargate integration, and OCI's 50%+ IaaS growth will lift revenue visibility.
- RPO momentum: The $137 billion backlog is a “loaded gun” for future earnings.

While risks like component delays and macroeconomic headwinds linger, they are already priced into Oracle's valuation. At $180—below Jefferies' $200 target—the stock offers a 22% upside with dividend protection.

Conclusion

Oracle's cloud transformation is no longer a promise but a reality. With RPO at record highs, OCI's growth trajectory, and a catalyst-rich H2, the stock is primed for a breakout. Buy Oracle now, and hold through the inflection.