During September last year, Oracleof (NYSE:ORCL) Earnings results for the first quarter of fiscal 2026 showed that management issued impressive guidance for its cloud infrastructure unit. The segment includes the company’s data center business, which leases graphics processing units (GPUs) to companies deploying artificial intelligence solutions.
At the time, Oracle said cloud infrastructure revenue would grow 77% this fiscal year to $18 billion and surge to $144 billion by fiscal 2030. Investors welcomed the move and pushed the stock higher in a furious rally.
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This backlash will be short-lived, as AI concerns will affect the entire symbiotic ecosystem. But now, a recent $110 billion catalyst could make Oracle’s fiscal 2030 guidance more likely to be met.
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After a strong September quarter, investors quickly learned that the devil is in the details. At the time, Oracle also reported $455 billion in remaining performance obligations (RPO), or revenue that is contracted but not yet collected. The large number of RPOs gives the company and investors confidence in Oracle’s guidance.
However, it was eventually discovered that $300 billion of the RPO came from ChatGPT’s parent company, OpenAI, which had struck a five-year deal with Oracle for data center capacity. OpenAI has many unfulfilled data center commitments totaling $1.4 trillion over the next eight years.
That worries investors because the company, despite being the fastest-growing consumer app ever, still only generates about $20 billion in annual recurring revenue. At the same time, Oracle is raising huge amounts of debt to complete its data center construction, creating significant risks if OpenAI cannot meet its commitments.
In its fiscal 2026 second-quarter earnings report, the company raised its full-year capital spending guidance to $50 billion from $35 billion and reported negative free cash flow, but that did little to quell investor concerns that it might be taking on too much risk.
The good news for Oracle is that OpenAI recently successfully raised $110 billion in private financing, led by investors including Amazon, NVIDIAand SoftBank, which valued the company at $730 billion pre-money. While rumors swirl about this raise, no one is sure it will be completed.
Additionally, this should provide the company with a solid runway before potentially pursuing an initial public offering to raise additional capital. OpenAI also plans to place ads on ChatGPT. Evercore ISI analyst Mark Mahaney previously wrote in a research note that if OpenAI executes, the business could grow to $25 billion annually.
Mahaney’s assumptions are based on ChatGPT’s projected size by 2030 and how other marketing platforms have historically generated revenue through advertising. A CNBC report in late February cited anonymous sources as saying that OpenAI believed the company’s total revenue could grow to $280 billion annually by 2030.
So, given OpenAI’s recent funding and revenue forecasts, you can start to see how OpenAI will fund all of its AI infrastructure commitments, although I’m sure those forecasts will vary depending on who you ask.
In the third quarter, Oracle announced RPO of $553 billion, beating Wall Street expectations and giving investors more confidence that there is strong demand for its data centers and that the company’s capital expenditures will translate into good long-term investments.
Those results, coupled with growing confidence that OpenAI can deliver on all of its promises, boosted the stock. In fact, Wall Street analysts expect the company to generate $158 billion in cloud infrastructure revenue in fiscal 2030, according to Visible Alpha. Now, this estimate is based on just four analysts’ models. Although there’s more to come about Oracle, it’s not a bad start.
Additionally, if Oracle’s quarterly cloud infrastructure revenue grows at the same pace as in the third quarter, the company would top $18 billion, in line with management’s guidance.
After the stock took a beating over the past six months, I think investors can at least start nibbling on Oracle now that the risk-reward setup has become more favorable.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
A $110 billion catalyst puts Oracle more likely to hit its 700% cloud infrastructure revenue growth guidance by 2030 originally published by The Motley Fool
