Oracle’s AI Ambitions Fuel Optimism Amid Market Volatility

Oracle US68389X1054

Following a significant decline at the close of 2025, Oracle shares are attracting renewed attention as the new year begins. This shift in sentiment is largely attributed to a bullish sector report from the investment firm Jefferies, which maintains a constructive long-term view on the software giant despite recent share price weakness. The analysis centers on massive artificial intelligence investments, a surging contract backlog, and whether the market overreacted with its recent sell-off.

A primary pillar supporting the optimistic outlook is the explosive growth in Oracle's Remaining Performance Obligations (RPO). This metric, representing future contracted revenue not yet recognized, has skyrocketed to $523.3 billion—a staggering 433% increase year-over-year. This figure suggests a remarkably robust pipeline of business.

Notably, Oracle's cloud segment is targeting aggressive expansion:
* Growth for Oracle Cloud Infrastructure (OCI) is projected to accelerate from 50% in fiscal 2025 to over 70% in fiscal 2026.
* The OCI revenue forecast for fiscal 2026 stands at $18 billion.
* A long-term target aims for OCI revenue to reach $144 billion by 2030.

Momentum is being driven by major AI clients. The company has secured multi-billion dollar agreements with firms including OpenAI and Nvidia. Revenue from the Autonomous Database product grew 43% in the latest quarter, while Cloud@Customer revenue more than doubled, rising 104%, with an additional 30 implementations planned for fiscal 2026.

Jefferies Doubles Down on a Recovery Thesis

In its "2026 Software Playbook," Jefferies analyst Brent Thill reaffirmed his Buy rating on Oracle and established a price target of $400. This call represents a clear bet on a share price recovery after the equity fell approximately 33% in the final three months of last year.

The firm's assessment is rooted in an anticipated growth surge from cloud and AI operations. Analysts project currency-adjusted revenue growth of at least 16% for 2026, fueled predominantly by capital expenditures into AI infrastructure like data centers and services for compute-intensive applications. The $400 price target indicates Jefferies sees substantial upside from current levels, interpreting the recent correction as an opportunity rather than a sign of structural issues.

Valuation Concerns and Historical Volatility Persist

Despite the compelling growth narrative, Oracle's valuation remains a point of debate. After its sharp retreat from September 2025 highs, the average 12-month analyst price target sits at $293.71, notably below Jefferies' more ambitious goal. With a price-to-earnings ratio hovering around 37, the stock is not considered cheap.

A key concern is the tension between rapid AI investment and near-term financial strength: free cash flow has turned negative as Oracle aggressively expands its data center capacity to meet rising AI demand. Furthermore, the stock has a historical tendency for significant volatility, having lost 77% during the dot-com bubble, roughly 41% in the 2008 financial crisis, and 40% during a recent period of high inflation. This pattern underscores the importance of entry timing and fuels the ongoing discussion around its current valuation.

Technical Picture and Current Trading Levels

From a charting perspective, signs of tentative stabilization are emerging. After a sell-off that completely erased and surpassed the gains from the OpenAI deal announcement, technical analysts note a potential breakout from a descending wedge formation. The shares currently trade at $192.88, hovering near the 200-day moving average, which suggests a cautious attempt at recovery following the year-end weakness.

Risks Within the AI Strategy Model

The list of potential headwinds remains considerable:
* Substantial AI Capex: Aggressive spending on data centers pressures free cash flow and increases the urgency to rapidly utilize the new capacity.
* OpenAI's Solvency: Market participants have raised questions about whether OpenAI can fully meet its obligations under the compute deal, which is valued at up to $300 billion.
* Insider Selling: A cluster of sales by company executives has fostered additional skepticism and is being closely monitored by investors.
* Historical Volatility: The stock's pronounced susceptibility to large swings during past crises serves as a reminder that significant future drawdowns remain possible.

Looking Ahead to the Next Catalyst

The next critical milestone will be the quarterly earnings report scheduled for March 16, 2026. This update will reveal whether the powerful RPO growth, accelerating OCI expansion, and major AI contracts are beginning to translate measurably into revenue and cash flow. Concurrently, the market will scrutinize Oracle's ability to pair its ambitious data center build-out with a sustainable monetization strategy for burgeoning AI demand.