Oracle Corporation has continued to see advantages from the momentum of its cloud business in the first quarter of its fiscal year. However, BofA Securities has indicated that an 'aggressive' ramp-up in cloud services may be necessary during the latter half of the year to meet the company's comprehensive revenue projection after the recently released top-line guidance for the second quarter came in below expectations.
In a note distributed on Tuesday, the brokerage elevated its price target for Oracle shares to $175 from a previous target of $155 while maintaining a neutral rating on the stock. Following the release of stronger-than-anticipated financial results for the first quarter, Oracle's shares surged by 12% during Tuesday's trading session.
Among the positive indicators observed, BofA highlighted a notable acceleration in the annual growth of total remaining performance obligations (RPO), which encompasses future commitments that emerge from contractual engagements. The annual growth surged to 53%, up from 44% in the previous fourth quarter, primarily driven by substantial cloud migration deals.
Nevertheless, BofA pointed out that the current RPO growth witnessed a decline, landing at 18% compared to 33% in the prior period, hinting that the first quarter’s RPO benefits were significantly influenced by duration and a handful of larger Oracle database migration contracts, according to the research findings.
Additionally, there was an impressive three-percentage-point year-over-year increase in Oracle's cloud infrastructure currency-neutral revenue growth, now standing at 46%. This uptick indicates 'solid execution on migration deals,' although it is worth noting that this segment had an easier comparative base, as stated by BofA analyst Brad Sills.
For the fiscal second quarter, Oracle's guidance for constant-currency revenue growth hovered around 8% at the midpoint, which fell short of BofA’s expectations of 9%. This gap suggests that Oracle will need to generate stronger results in the second half of the fiscal year to achieve its target for double-digit revenue growth for the full year, according to the earlier reports.
During a conference call on Monday, Chief Executive Officer Safra Catz conveyed to analysts that the company is 'very confident and committed' to meeting its fiscal 2025 revenue growth targets, as per a transcript provided by Capital IQ. BofA is currently forecasting sequential revenue growth rates of 10% and 12% for the third and fourth quarters, respectively, in contrast to the normative seasonality figures of 8% and 12%.
However, a significant increase in capital expenditures, which soared by roughly 50% in the first quarter, poses a potential threat to margins. Sills remarked, 'A CapEx ramp of this magnitude sets the hurdle for margin expansion significantly higher from this point onward.' In light of these developments, BofA has altered Oracle’s earnings per share (EPS) outlook for 2025, reducing it to $6.26 from $6.31, which positions the brokerage slightly below the Bloomberg consensus of $6.30.
Adjustments were also made to the EPS estimates for 2026 and 2027 to reflect these shifts in outlook. Current Stock Price: $156.46, Change: +$16.57, Percent Change: +11.85.