It’s rare to see a company as large as Oracle (ORCL) surge nearly 40% in a single trading day on the back of its blockbuster Q1 2026 earnings call. Although the stock has given back some gains in the sessions since, that doesn’t change the bigger picture: this software giant and rising hyperscaler has delivered growth of more than 90%.
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To follow up its impressive results, the tech powerhouse then announced a potentially needle-moving cloud contract with the NATO Communications and Information Agency (NCIA). The deal will see the NCIA “moving its mission-critical systems” over to Oracle’s cloud infrastructure, meaning that NATO’s tech and cyber hub will rely on Oracle to power secure communications, defend networks, and support military operations. However, with unbridled commercial momentum growing, ORCL bulls may have overcooked their expectations.
The latest figures were truly impressive. Oracle shocked the market by growing its AI and cloud backlog by more than four times compared to last year. Moreover, management issued bold guidance for the coming four years, which, in theory, positions Oracle alongside the top three hyperscalers—Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL)—with the largest backlog among them.
Looking ahead, the market is now pricing in the following scenario: Oracle needs to deliver on the ambitious growth targets while also scaling margins to a level that justifies its lofty valuation. At this point, it seems the stock is trading on the best-case scenario, leaving little (or no) room for error in the growth story.
For now, a more moderate approach may be the safest. That’s why I consider ORCL a Hold at the moment.
Oracle’s Q1 Results and the Backlog Boom Explained
Oracle reported its Fiscal Q1 results, missing both EPS and revenue by a small margin—one cent and $117 million, respectively. But that didn’t stop the company from adding about $244 billion in market value in a single earnings session—roughly equal to the market cap of Morgan Stanley (MS) today—reaching $922 billion at last check.
While that market cap might seem inflated for a company that posted $15 billion in revenue last quarter, the real shock to expectations came from the magnitude of contracts booked. In Fiscal Q4 (the third-to-last quarter), Oracle had reported remaining performance obligations (RPOs) of $138 billion, an annual growth of 41%. In the following quarter, RPOs skyrocketed to $455 billion, roughly a fourfold increase from the same time last year. According to the company, this surge came from four key deals.
RPOs represent future revenue for the company (though they carry some risk of being reduced or canceled). This massive growth in backlog led Oracle to revise its Cloud Infrastructure revenue guidance:
- $18 billion for Fiscal 2026, roughly in line with market expectations;
- $32 billion for Fiscal 2027, about 2% above expectations;
- $114 billion for Fiscal 2028 and $144 billion for Fiscal 2029, which were 16.7% and 39.4% higher than what the market had anticipated.
So, Oracle’s recent massive re-rating wasn’t driven at all by results this year or next, but by expectations for Fiscal 2028 and beyond, as analysts updated their models in line with the company’s guidance—backed by the spectacular growth in RPOs last quarter.
Oracle’s Revenue Leap Explained
Based on the $144 billion in revenue that Oracle is guiding for its cloud infrastructure business four years out, this would represent roughly 8x growth from the $18 billion forecasted for the current year.
While that’s undeniably impressive, it’s important to note that much of this incremental revenue—supported by aggressive RPO numbers—is expected to come from the major hyperscalers (Microsoft, Amazon, and Alphabet) offloading their cloud/AI capacity onto Oracle’s infrastructure. In other words, this is more about rerouted workloads than organic demand.
The feasibility of hitting this growth target, however, is questionable on several fronts, according to D.A. Davidson analyst Gil Luria, one of the few skeptics of Oracle’s thesis. Data centers are already straining grid capacity, making it extremely difficult to increase supply tenfold over the next four to five years. Additionally, there are supply constraints from TSMC (TSM), Nvidia (NVDA), and Broadcom (AVGO), which means production is unlikely to scale at the same pace.
Building all the necessary infrastructure to support this growth will require hundreds of billions of dollars, at a time when multiple players will be competing for financing in the debt market, further intensifying the challenge.
Bull Case Priced In, Risks Overlooked
Beyond the feasibility of achieving such a growth pace in revenues for Oracle’s cloud infrastructure segment, perhaps the most critical point is how the bottom line is likely to behave, given that GPU-heavy AI contracts come with very low single-digit margins, compared to Oracle’s over-50% margins from its software business.
The most apparent trend is that profits will not be able to scale at the same pace as revenues over the next four years, despite analysts predicting that Oracle will triple its EPS by Fiscal 2029 compared to the past twelve months. The Q1 results themselves already showed a contraction in EPS, despite Oracle currently having the highest RPO among Microsoft ($315 billion), Amazon ($189 billion), and Google Cloud ($106 billion). The pattern seems clear: as RPO grows, these contracts will exert increasing pressure on margins, raising a big question mark over EPS growth at the same rates.
Even so, the market now prices Oracle at roughly 55x earnings, a significant premium compared to Microsoft at 36.5x, reflecting a re-rating not just in revenue but also in earnings. In my view, this suggests that the bull case is effectively baked into Oracle’s market value, while the base or bear case is being largely ignored, which I consider a risky approach.
Is ORCL a Buy, Hold, or Sell?
Analysts remain largely bullish on Oracle’s shares, although the upside appears limited. Of the 33 ratings, 25 are bullish while eight are neutral. As things stand, ORCL’s average stock price target is $332.93 per share, implying an upside of ~8% over the coming 12 months.
Bullish Momentum Meets Real-World Constraints
Oracle’s recent massive re-rating is justified, to a certain extent, given the strong growth in RPOs, which provides a constructive outlook for scaling revenues to levels far more optimistic than anticipated just a quarter ago. The key question now is how margins will hold up, especially since the recent quarter already sent a negative signal, and with a pressured mix and high capital expenditure spending ahead.
While demand for AI doesn’t appear to be an issue, the feasibility of funding revenue growth purely based on RPO expansion is far from certain. Still, this doesn’t mean the current growth momentum cannot continue to be rewarded by the market, with the stock potentially rising in the short to medium term. However, with valuations seemingly relying heavily on a best-case scenario—EPS scaling 3x in four years while Oracle’s cloud infrastructure revenues scale 8x—there may be inconsistencies along the way. For now, a Hold seems like the more prudent stance.
