Bank of America revisits Oracle stock price target after post-earnings selloff

Shares of Oracle (ORCL) tumbled 8.53% on June 11 as investors are concerned about the company's plans to raise more money to fund its AI buildout, overshadowing better-than-expected fiscal fourth-quarter results and a higher profit outlook announced a day earlier.

On June 10, the 49-year-old cloud and database software giant reported adjusted earnings of $2.03 per share, topping analysts' estimates of $1.96 per share. Revenue rose 21% year over year to $19.18 billion, slightly ahead of the $19.10 billion expected by analysts.

Oracle maintained its fiscal 2027 revenue guidance of $90 billion and raised its adjusted earnings per share forecast to $8.05. Wall Street was expecting earnings of $8.01 per share and revenue of $88.9 billion, according to CNBC.

For the fiscal first quarter, Oracle forecast adjusted earnings of $1.72 to $1.76 per share and revenue growth of 27% to 29%. Analysts were expecting earnings of $1.68 per share and revenue of $19.06 billion, which implies about 28% growth.

Oracle’s financials suggest growing concerns

Oracle's growth story is raising concerns about funding and cash flow.

The company's remaining performance obligations (RPO) soared 363% to $638 billion last quarter, topping the $595.67 billion average analyst estimate. RPO reflects future contracted revenue and is a strong indicator of growth momentum. Investors are worried about its conversion to actual revenue amid high spending.

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Another major concern is Oracle's cash levels and debt-raising. Oracle has been leaning on the debt market to fund its buildout, and investors are worried whether Oracle's AI investments will deliver returns that justify the funding. 

Oracle already raised $43 billion in debt financing and $5 billion in equity financing in fiscal 2026. The company said it expects to raise another $40 billion through debt and equity financing in fiscal 2027, including a previously announced $20 billion share sale.

Two months ago, Oracle laid off 30,000 employees.

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For the whole fiscal year 2026, Oracle’s free cash flow was negative $23.7 billion as it "continued to execute on investments to support the growth of its Cloud Infrastructure business," the company said in a statement.

Wall Street expects Oracle’s heavy data center spending to push its cash flow negative in the coming years. The investments may not pay off until around 2030, according to Bloomberg data.

Bank of America remains bullish on Oracle stock

Despite the post-earnings selloff, Bank of America reiterated its buy rating and $240 price target on Oracle stock, according to a research note sent to TheStreet.

Bank of America analyst Tal Liani said a key takeaway was Oracle's 93% year-over-year growth in cloud infrastructure and platform services, while the $85 billion increase in remaining performance obligations is "reinforcing visibility into future revenue."

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"We expect [roughly] 12% of RPO to convert into revenues over the next 12 months, on the back of data center buildout completion," Liani wrote.

As for the post-earnings tumble, Bank of America views it "as noise relative to the underlying infrastructure ramp and expects mix to continue shifting toward faster growing IaaS Cloud."

The analyst also pointed to strong profitability. Operating margin came in at 44.8%, above Wall Street's estimate of 43.4%, while adjusted earnings of $2.11 per share topped expectations of $1.97. Revenue grew 20.6% year over year, slightly ahead of consensus estimates.

While the analyst also expects free cash flow to remain negative through fiscal 2029 due to heavy spending on AI infrastructure, they believe Oracle's capacity ramp supports a strong growth outlook.

"The results validate Oracle's strategy to future-proof its business through a pivot to AI infrastructure. Execution remains strong, delivering more than 1.2GW in FY26 and expecting to deliver 1GW in 1Q27, with major sites ramping," Liani wrote.

"RPO conversion is expected to put some pressure on gross margins initially, yet we expect margin pressure to ease with scale and revenue ramp," he added.

Oracle stock is down 5.53% year-to-date, closing at $184.13 on June 12.

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