Piper Sandler: Oracle Corporation's (ORCL.US) cloud business is expected to exceed expectations in the fiscal year 2027, with incremental contributions reaching $2.2 billion.

Investment bank Piper Sandler released a report stating that Oracle Corporation's cloud infrastructure (OCI) business is expected to surpass current market expectations in terms of revenue in the fiscal year 2027, mainly due to accelerated capital expenditure converting into actual revenue. Analysts believe that the company's large-scale capital expenditures (CapEx) are gradually transforming into actual capacity and revenue, a transformation efficiency that investors may be underestimating. Piper Sandler maintains an "overweight" rating on Oracle Corporation with a target price of $225. Analyst Billy Fitzsimmons stated in the client report that the team referenced publicly available data from Crusoe and CoreWeave to establish cost benchmarks: the construction cost baseline per megawatt (MW) is approximately $46 million, and the Infrastructure as a Service (IaaS) revenue baseline per MW per year is approximately $13.5 million. Based on the potential capital expenditure range for Oracle Corporation in the fiscal year 2027 and the above unit cost assumptions, it is deduced that the quarterly additional online capacity could be approximately 2400 MW. Further calculations based on the gradual ramp-up of this capacity (weighted in for the whole year) and an IaaS revenue model of $13.5 million per MW, it is estimated that this will bring about an additional $23 billion in OCI revenue, significantly higher than the bank's current baseline forecast of $20.8 billion. Fitzsimmons pointed out that this means there is a potential upside of approximately $2.2 billion in OCI revenue for the fiscal year 2027, equivalent to boosting the growth rate of OCI in that fiscal year by about 12 percentage points, and pushing the total OCI revenue for the year to around $41.1 billion. Recently, Oracle Corporation issued new warnings to investors in its annual financial report that all investments made in data centers may not yield returns. These disclosures in Oracle Corporation's annual financial report detailed the company's plans to invest heavily in artificial intelligence infrastructure for clients like OpenAI. The report also highlighted various risks that this expensive investment might bring about. Oracle Corporation stated that the construction of data centers may ultimately be more costly or time-consuming than initially expected. This could be due to issues in the supply chain, government restrictions on data center construction, or third parties not completing projects as scheduled. In late June, Oracle Corporation carried out mass layoffs to drastically cut costs in order to support its ambitious artificial intelligence plans. This layoff of over 20,000 people occurred against the backdrop of global tech giants such as Amazon.com, Inc., Microsoft Corporation, and Alphabet Inc. Class C significantly increasing their investments in AI infrastructure, as these giants strive to free up more cash to build artificial intelligence data center infrastructure.