Goldman Sachs backs Oracle (ORCL.US): AI financing concerns or excessive amplification of the risks of projects under construction are manageable
The Zhitong Finance App learned that Goldman Sachs recently held investor meetings for Oracle (ORCL.US) in Los Angeles and San Francisco. Oracle CEO Clay Magourky, Chief Financial Officer Hillary Maxson, and Bill Choi, Senior Vice President of Investor Relations, attended. Goldman Sachs maintained Oracle's “buy” rating in a research report released after the conference. The target price for 12 months was 206 US dollars, implying an upward space of about 77.4%. Goldman Sachs believes that Oracle has shown “strong operational agility” in data center construction and has good visibility on both supply and demand sides, and that market concerns about its capital expenditure and financing gaps may be overmagnified. The company completed 20 billion US dollar bond financing last week, and made it clear that no further financing is required during this capital expenditure cycle.
Financing suspense settled: 20 billion US dollars of financing completed, “no more money required” in this cycle
One of the topics Goldman Sachs was most concerned about during this trip was the funding source for the expansion of Oracle's data center. According to the research report, Oracle completed 20 billion US dollars of debt and equity financing last week, and stated that no more capital will be needed for this capital expenditure cycle — this judgment is not an empty promise, but is based on the company's clear internal calculations of various customer contract models and the downside scenario stress tests in advance.
Goldman Sachs specifically mentioned that the three contract models proposed by Oracle on Investor Day can reduce upfront capital expenses by 50%. The company said that since the industry is in a supply-limited environment, even if customers are given flexibility in deployment models, there is no need to sacrifice profit margins, and the economy of each model unit is attractive. In Goldman Sachs's view, this means that Oracle's financing pace is “settled” rather than a passive response.
Data center construction: 7GW projects under construction risk are manageable, new projects may move overseas
In response to market concerns about US data center construction progress and licensing risks, Oracle's response was quite direct. According to the company, people who are surprised by the challenges of building data centers are “all people who don't build data centers.” Oracle said it detected changes in the political environment more than a year ago and has designed flexible plans according to regions, states, and the entire US.
Goldman Sachs quoted management as saying that the 7GW production capacity planned to be launched in the next two years is all contracted and under construction, and the possibility that the license will be revoked is very low. Goldman Sachs believes the only real risk is the New Mexico project — the project still requires air permits to expand to full capacity, but Oracle has alternatives. Furthermore, if the data center cannot be built, the contract structure makes Oracle not liable; management also suggested that there is a difference in caliber between the “delays” reported in the news and the delays already included in the company's internal plans. In the medium term, Goldman Sachs expects to shift more of its new construction projects overseas, including South America, Southeast Asia, and Australia.
Demand side: There is a large room for enterprise penetration, and 2027 may welcome a revaluation catalyst
On the issue of demand for AI terminals, Oracle emphasized that the potential for enterprise-level proliferation is far from being unleashed. The core of its application strategy is to transform original technical components such as cutting-edge models into applications where people can complete their work. Goldman Sachs specifically mentioned the Oracle Fusion Kit: the first stage AI productivity is already packaged into the product, and the second stage will gradually be monetized as more transformative processes such as AR reconciliation become feasible; robots may become a new engine for the next stage of token generation and application business growth.
Goldman Sachs provided three catalysts for revaluation in 2027: one is to more clearly determine which data center projects may be adjusted due to changes in state and local projects; second, OCI gross profit and cash flow will rise at an inflection point in the next 4 to 8 quarters; third, at the industry level, there is a clearer visibility into the token demand function — including not only a deeper understanding of cutting-edge model training and inference feedback cycles, but also the adoption of new intelligent workflows in the fields of ERP and vertical medical software.
Valuation and Risk: Focus on customer concentration and FY30/31 renewal
Goldman Sachs maintains Oracle's “buy” rating, with a 12-month target price of $206. The main risks listed in the research report include customer concentration risks, data center construction time and execution risks, capital expenditure intensive cycles and financing requirements, and the accelerated loss of database/SaaS market share.
On the issue of customer concentration and FY30/31 renewal, Oracle management stated that the more difficult it is to build a data center, the lower the probability that a customer will build their own data center; memory is still a limiting factor. The company believes that cutting-edge laboratories will expand production capacity in the next five years, but FY30/31 is unlikely to have GW surplus production capacity, leading to a cliff-style decline in Oracle's business.
On the issue of contract renewal, the management's attitude is clear: the customer relationship is two-way, and the risk of a centralized contract is equal for both parties. Oracle emphasizes that the priority is to be a good partner for customers; at the same time, it believes that competitors are likely to remain rational in the cloud computing cycle.