Oracle Has a ‘Blue Sky Scenario’ in OpenAI Deal. What It Means for the Stock.

Oracle’s total revenue could easily top the $104 billion management forecast for 2029, a TD Cowen analyst said. (Dreamstime)

In the words of one analyst, Oracle’s “blue sky scenario is unfolding.”

Shares popped on Wednesday after Bloomberg reported that the company was expanding its Stargate data-center project with OpenAI. The ChatGPT maker will rent roughly 4.5 gigawatts of new U.S. data center capacity, the outlet said, citing people familiar with the matter.

After closing up 5% on Wednesday, Oracle stock continued to gain, climbing 3.2% to $237.35 on Thursday. And it seems investors aren’t the only ones who believe the news, as analysts at TD Cowen have the same inkling.

The unsubstantiated report “solidifies our belief that the large deal Safra Catz referenced this week was with OpenAI, and more specifically Stargate, a funding vehicle for OpenAI,” analyst Derrick Wood wrote in a research note Thursday.

Oracle CEO Catz disclosed in a filing with the Securities and Exchange Commission earlier this week that the company had “signed multiple large cloud services agreements,” including one that was expected to generate more than $30 billion each year starting in 2028.

Deals of this size are nothing new for Oracle. TD Cowen believes the company signed a 200 megawatt commitment with OpenAI in mid-2024 and “a much larger contract” at the start of 2025, which contributed to a sequential spike in gross new bookings in the third quarter.

Previously, the firm was unsure whether some of the $30 billion referenced was related to renewals; in light of the report, it is “likely all net new,” Wood wrote. This development could cause Oracle’s total revenue growth to be greater than 50% in fiscal 2028. Furthermore, the revenue run rate from the OpenAI contract could grow beyond the initial $30 billion a year as more capacity comes online.

The unconfirmed report also supports another one of the firm’s theses. The likelihood of the OpenAI deal being a $150 billion remaining performance obligation contract — the initial bull case view — “is quite reasonable, if not higher,” Wood wrote. RPO, as it is better known, is a metric representing future revenue from contracts that has yet to be recognized.

Wood believes Oracle’s total revenue in 2029 could handily top the $104 billion forecast by management. The analyst sees further upside for the stock as visibility into backlog and future revenue unfolds. He current rates Oracle stock at Buy with a $275 price target, up from $250.

It seems he isn’t the only bull in town. Citizens JMP analyst Patrick Walravens reiterated a Market Outperform rating and $240 price target on Oracle stock Thursday. He noted that shares were up 39% this year as of the time of his note, compared with an increase of 6% for both the S&P 500 and Russell 3000.

As Oracle continues its data center buildout, the stock presents “an attractive opportunity for capital appreciation,” Walravens wrote. Citizens JMP has covered Oracle since 2002 and lauds its strategy of “focusing on building good infrastructure using the best available technology,” which allows for efficient scaling.

Other bright points include the long-term leadership of chairman and co-founder Larry Ellison, as well as the company’s cloud infrastructure offering, which is “setting up some really sophisticated environments where one could argue they have the best GPU clusters in the world” according to one of the firm’s industry sources.

Of 41 analysts polled by FactSet, 26 rate Oracle at Buy or the equivalent, while 15 rate it at Hold.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com