Goldman Sachs Group, Inc. Backs Oracle Corporation (ORCL.US): AI Financing Concerns May Be Overblown, Risks of Projects Under Construction Manageable

Goldman Sachs Group, Inc. recently hosted investor meetings for Oracle Corporation (ORCL.US) in Los Angeles and San Francisco, attended by Oracle Corporation CEO Clay Magourky, CFO Hillary Maxson, and Senior Vice President of Investor Relations Bill Choi. In a research report published after the meetings, Goldman Sachs Group, Inc. maintained its "Buy" rating on Oracle Corporation with a 12-month target price of US$206, implying approximately 77.4% upside. Goldman Sachs Group, Inc. believes that Oracle Corporation has demonstrated "exceptional operational agility" in data center construction, with good visibility on both the supply and demand sides, and that market concerns over its capital expenditure and financing gap may be overblown. The company completed US$20 billion in debt and equity financing last week and made clear that no further financing is needed in the current capital expenditure cycle. Financing Uncertainty Resolved: US$20 Billion Financing Completed, No More Money Needed This Cycle One of the topics Goldman Sachs Group, Inc. focused on most during the meetings was the source of funding for Oracle Corporation's data center expansion. The research report noted that Oracle Corporation completed US$20 billion in debt and equity financing last week and stated that the current capital expenditure cycle requires no additional capital a judgment not based on empty promises, but on the company's clear internal modeling of various customer contract structures and prior stress-testing against downside scenarios. Goldman Sachs Group, Inc. specifically noted that the three contract models Oracle Corporation presented at its investor day can reduce upfront capital expenditure by 50%. The company said that because the industry is in a supply-constrained environment, even offering customers flexibility in deployment models does not require sacrificing margins, and the unit economics of each model are attractive. In Goldman Sachs Group, Inc.'s view, this means Oracle Corporation's financing pace is "calculated" rather than reactive. Data Center Construction: Risks of 7GW of Projects Under Construction Manageable, New Projects May Shift Overseas Regarding market concerns about U.S. data center construction timelines and permitting risks, Oracle Corporation's response was quite direct. The company said that those surprised by the challenges encountered in building data centers "are people who don't build data centers." Oracle Corporation said it detected changes in the political environment more than a year ago and has designed flexible solutions by region, state, and nationwide. Goldman Sachs Group, Inc., citing management, said that the 7GW of capacity planned to come online over the next two years consists entirely of signed, under-construction projects, with a very low probability of permits being revoked. Goldman Sachs Group, Inc. believes the only genuine risk is the New Mexico project which still requires an air permit to expand to full capacity, but Oracle Corporation already has alternatives. In addition, if data centers cannot be built, the contract structure means Oracle Corporation bears no liability for damages; management also noted a discrepancy between the "delays" reported in the news and the delays already incorporated into the base case of the company's internal plans. Medium-term, Goldman Sachs Group, Inc. expects new construction projects to shift more toward overseas markets, including South America, Southeast Asia, and Australia. Demand Side: Significant Room for Enterprise Penetration, 2027 May Bring Re-rating Catalysts On AI end-demand, Oracle Corporation emphasized that the potential for enterprise-wide diffusion is far from exhausted. The core of its application strategy is to transform raw technology components such as frontier models into applications that enable people to complete work. Goldman Sachs Group, Inc. specifically noted Oracle Corporation's Fusion suite: the first phase of AI productivity has been packaged into products, and the second phase will be gradually monetized as more transformative processes such as AR reconciliation become feasible; Siasun Robot&Automation may become a new engine for token generation and application business growth in the next phase. Goldman Sachs Group, Inc. identified three re-rating catalysts for 2027: first, clearer judgment on which data center projects may be adjusted due to state and local project changes; second, a clear inflection point upward in OCI gross profit and cash flow over the next 4 to 8 quarters; third, at the industry level, clearer visibility into the token demand function including both a deeper understanding of the training and inference feedback loop for frontier models and the adoption of new agent workflows in areas such as ERP and vertical healthcare software. Valuation and Risks: Focus on Customer Concentration and FY30/31 Renewals Goldman Sachs Group, Inc. maintained its "Buy" rating on Oracle Corporation with a 12-month target price of US$206. The main risks listed in the research report include: customer concentration risk, timing and execution risk in data center construction, the capital expenditure-intensive cycle and financing needs, and accelerated market share loss in database/SaaS. On customer concentration and FY30/31 renewals, Oracle Corporation management said: the harder it is to build data centers, the lower the probability that customers will build their own data centers; memory remains a limiting factor. The company believes frontier labs will expand capacity over the next five years, but a GW-level surplus of capacity causing a cliff-like decline in Oracle Corporation's business is unlikely in FY30/31. On renewals, management's stance was clear: customer relationships are two-way, and the risk of concentrated contracts is symmetrical for both parties. Oracle Corporation emphasized that its top priority is to be a good partner to its customers; it also believes competitors will most likely remain rational through the cloud computing cycle.