Oracle Facing Potential Liquidity Crisis: Analysts Predict Imminent Need for Cash Infusion
Oracle, a leading provider of cloud-based solutions, is gearing up for potential capital needs in the coming years, primarily due to significant investments in data center expansion and upgrading computing infrastructure. These investments are crucial for supporting the company's cloud and artificial intelligence (AI) businesses.
According to Barclays analyst Keith Bachman, these large capital expenditures (CapEx) could put pressure on Oracle’s free cash flows and may weigh on future earnings in the near term. The company is investing heavily in GPU and data center infrastructure to keep pace with the increasing demand for AI and cloud services, with potential investments totaling hundreds of billions.
Oracle's Q4 performance was impressive, with a profit of $3.43 billion or $1.70 per adjusted share, surpassing analysts' estimate of $1.64 per share. The quarterly revenue was $15.9 billion, beating Wall Street's estimate of $15.54 billion. The company's cloud services and license support segment contributed $11.7 billion, up 14%, while Oracle's cloud infrastructure (OCI) revenue surged 52% to $3 billion.
However, these investments in AI and cloud infrastructure could limit the free cash flow available for other uses, potentially reducing near-term earnings despite driving longer-term growth opportunities from AI and cloud adoption. This dynamic is common in the cloud/AI sector, where heavy upfront investments are made to capture long-term value.
Oracle's remaining performance obligations (RPO) climbed 41% to $138 billion, indicating a strong pipeline of future business. Despite this, analysts like Keith Bachman are concerned about Oracle's future capital needs due to increased expenditure and cash requirements for dividends and planned share buybacks. Bachman suggests that Oracle might look to raise $10 billion in FY26 and another $10 billion in FY27, which translates to a cost of $0.14 per share.
As of the article's publication, Oracle has a consensus "Moderate Buy" rating on Wall Street. While the mean price target for Oracle's stock is $222.44, which is 5% below the stock's current trading price, 22 analysts have given Oracle a "Strong Buy" rating, one has given a "Moderate Buy" rating, and 12 have given a "Hold" rating. Oracle's stock has gained 41% year-to-date and is up 62% in the 52-week timeframe, trading at its all-time high.
Oracle's CEO Safra Catz projected even stronger growth in FY26, with cloud infrastructure revenue expected to grow over 70% and total cloud revenue by more than 40%. This optimistic outlook, combined with the potential capital needs, presents a challenging yet exciting future for Oracle.
Technology investments, such as GPU and data center infrastructure, are crucial for Oracle's cloud and artificial intelligence (AI) businesses, which are driving growth opportunities in the long-term. However, these investments might limit the free cash flow available for other uses, potentially reducing near-term earnings due to increased capital expenditures and cash requirements.
