KeyBanc analysts, led by four-star analyst Jackson Ader, believe that Wall Street is underestimating the amount that tech firm Oracle (ORCL) will spend on cloud infrastructure and the revenue that this spending will generate in the years ahead. In the past, cloud giants could turn every dollar of spending into about 75 cents of extra revenue the following year. But since the industry shifted from CPU-based to GPU-based infrastructure (mostly to support AI workloads), that efficiency has dropped. In fact, from a peak of nearly 87% in 2021, the average conversion rate across major players has fallen to just under 50%.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 55% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Despite this decline across the industry, KeyBanc expects Oracle to outperform both Amazon’s (AMZN) AWS and Microsoft’s (MSFT) Azure in the coming years. For example, Azure and AWS had conversion rates of 111% and 93%, respectively, in 2016, but those rates are now expected to fall to just 35% and 36% this year. In comparison, Oracle’s 2025 estimate stands at 47%. This drop is due to companies building massive GPU-filled data centers. Since these mega-projects demand much higher upfront investment, it makes short-term revenue gains harder to achieve.
However, when looking ahead to 2026-28, consensus forecasts expect Oracle’s capex conversion to come in at 42%, 63%, and eventually 97%. Meanwhile, AWS and Azure are expected to remain between 30% and 34%. KeyBanc’s own estimates for Oracle are slightly lower at 28%, 39%, and 70%, but still much better than its competitors. The main reason for the difference is that KeyBanc sees Oracle spending more on cloud infrastructure than other analysts expect, partly due to a sharp rise in lease obligations. Still, KeyBanc has kept its Buy rating and $350 price target on Oracle, thanks to its strong long-term outlook.
Is ORCL Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ORCL stock based on 25 Buys, eight Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ORCL price target of $341.07 per share implies 17.5% upside potential.
