Late last year, Oracle outlined an ambitious plan to nearly double its revenue by fiscal 2029, forecasting sales of $104 billion that year. Oracle is aiming to capture growing enterprise AI spending in the cloud, separating itself from its hyperscale competitors with its ability to offer lower-cost AI compute via lower latency, multi-cloud AI flexibility, and AI vector search capabilities.

Additionally, Oracle is a key player in Stargate alongside OpenAI, SoftBank, and other partners, with its selection proving that, despite heightened competition from much larger cloud providers, Oracle Cloud has the capability to meet the large data, scale and performance demands for future AI workloads. Assuming high-single digit to low-double digit share of database and enterprise software spending, Stargate could represent tens of billions in revenue to Oracle with the project seeing a maximum investment of up to $500 billion over the next four years. The first phase is already underway with Oracle and OpenAI working to deploy 64,000 Nvidia GB200 GPUs at a large-scale facility in Texas.

However, Oracle is already on track to miss Cloud revenue targets for this fiscal year ending in May. Management also provided an optimistic forecast that would require Cloud revenue to nearly triple by FY29, and grow at almost a 30% CAGR, setting a high bar that includes execution risk with strong competition in AWS, Azure, and Google Cloud.

Unique AI Offerings Support Oracle’s AI Growth

Oracle’s ability to drive lower latency and high performance is one of the main reasons enterprises use Oracle for AI, as it allows enterprise customers to run demanding AI workloads faster and at a lower cost.

RDMA (Remote Direct Memory Access) is helping to drive Oracle’s AI story by enabling direct memory access between servers without utilizing CPUs, resulting in low-latency, high-bandwidth performance. Bypassing the CPU greatly accelerates data transfer rates, a necessity for large AI workloads requiring massive compute.

RDMA is integral to Oracle Cloud Infrastructure as the backbone of Oracle’s Gen2 Cloud and increasingly large Superclusters for AI training and inference, allowing ultrafast, near real-time performance. Oracle says that it can offer less than 10 microseconds of latency between nodes, improving efficiency.

With less overhead and fewer CPU cycles, RDMA helps Oracle offer its AI clusters at a lower cost: Oracle says it “consistently charges less than Amazon Web Services (AWS) for the equivalent compute capacity.”

Oracle offers the widest range of bare metal GPU instances among major cloud providers, and scalability at any size up to 65,536 Hopper GPU clusters and 131,072 B200 GPU clusters, which are expected to come online in 2025. Oracle also offers very flexible VM instances, letting customers pay for only the capacity they need as they need it for any size workload, rather than offering fixed instance sizes.

Oracle provides a wide range of AI clusters for small, medium and large-scale AI training. Source: Oracle

Oracle’s AI vector capabilities also stand out given Oracle’s database roots, offering native AI vector search capabilities with seamless integration to leading AI models from OpenAI, xAI, Meta, Cohere and more. AI vector search lets enterprises search both structured and unstructured data in a variety of manners, enabling intelligent, relevant and accurate AI responses utilizing their data. Oracle noted in Q3 that its Oracle Database 23ai can convert data into any vector format to be understood by an AI model of choice, facilitating AI training and inference on private data in Oracle Database.  

Oracle Bets Big on Future Revenue Growth; Yet Lacks History of Meeting Targets

Oracle’s executives exuded confidence in meeting ambitious long-term revenue targets, underscored by AI and multi-cloud momentum --- yet analysts aren’t so sure, with consensus estimates that are considerably lower than guidance offered during the recent earnings call.

In fiscal Q3 2025 (Oracle’s most recent quarter), management reaffirmed that confidence in reaching the $66 billion target for FY 2026 was now “stronger than ever,” while they also guided for 20% YoY growth in revenue in FY 2027, faster than previously expected. This would imply revenue of approximately $79.2 billion.

This builds upon management’s comments from Q2 that they believe they “now have a clear light of sight to our future revenue growth,” with total cloud infrastructure (IaaS) revenue in FY25 expected to grow faster than the 50% reported in FY24 and accelerate further in FY26.

Putting this in perspective, Oracle is betting on a major revenue growth acceleration driven primarily by growth in AI and cloud.

Reaching management’s optimistic $104 billion target in FY29 would require revenue growth at a 14.45% CAGR from FY24’s $52.96 billion. This is more than double the 6.03% CAGR that Oracle reported from FY19’s $39.51 billion in revenue through FY24, relying on strong, consistent AI and cloud growth to achieve these targets.

Here’s an annual breakdown of the preliminary growth guided through FY27 and what level of growth would be needed to achieve FY29’s forecast:

Oracle is targeting double-digit revenue growth from FY26 to FY29 to reach its $104 billion revenue target. Source: I/O Fund

Revenue growth would need to hit both the 15% growth and 20% growth targets in the next two fiscal years, and remain in the mid-to-high teens for FY28 and FY29 – such as 16.5% growth in FY28 and 13.3% growth in FY29.

Compare this to the prior comparable period from FY19 to FY24: Oracle reported only one year with revenue growth in the double-digit range, and just 6% in FY24 with less than 8% growth expected in FY25.

It would represent a rather unprecedented acceleration for Oracle and a monumental feat to drive a 12 point revenue acceleration in two years and maintain double-digit growth thereafter at a larger scale.

Analysts Remian Dubious of Oracle’s Growth Potential

Despite management’s confidence in achieving its growth targets in FY26 and FY27, analysts remain dubious over Oracle’s ability to hit these numbers successfully, considering the company has missed revenue estimates in both the last two quarters and in six out of the last seven.

Analysts are currently projecting Oracle to fall short of targets in FY26, FY27 and FY29, implying that they do not share the same level of confidence in future growth as management.

Analysts are projecting Oracle’s revenue to fall short of management’s forecasts for FY26, FY27 and the long-term FY29 target. Source: I/O Fund

• For FY26, analysts estimate Oracle will report 14.2% growth to $65.2 billion in revenue, falling short of both the stated 15% growth and $66 billion revenue target.
• For FY27, analysts estimate Oracle will report 18.2% growth to $77.0 billion in revenue, which would be nearly 2 points and $2 billion shy of what management is forecasting.
• By FY29, analysts estimate Oracle will report 13.3% growth to $100.5 billion in revenue, or about 3.4% shy of management’s long-term forecast.

There has been little change in FY26’s revenue estimate over the past six months, being revised just 0.4% higher. However, FY27’s revenue estimate has been revised nearly 4.3% higher to that $77.0 billion, yet it still remains more than $2 billion below where Oracle’s 20% guidance implies.

Analyst estimates for Oracle’s FY26 and FY27 revenue have been quite consistent over the past six months. Source: YCharts

This consistent shortfall for revenue growth and doubts over Oracle’s ability to reach its stated targets likely stems from Oracle’s inability to reach its near-term targets, including its $25 billion cloud revenue target for FY25.

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Oracle Falls Short of $25B Cloud Revenue Target for FY25

In fiscal Q2 2025, Oracle CEO Safra Catz said that Oracle was expecting its Cloud revenue to reach $25 billion for the full fiscal year. As of Q3, Oracle is firmly on track to miss that target.

Oracle reported $6.2 billion in Cloud revenue in Q3, up 25% YoY, bringing its YTD Cloud revenue up to approximately $17.7 billion. For Q4, Oracle guided for 26% to 28% YoY growth for Cloud revenue, implying revenue between $6.68 billion to $6.78 billion, or $6.73 billion at midpoint.

This would place FY25 Cloud revenue at $24.38 billion to $24.48 billion, or $520 million to $620 million short of its goal. Not only is Oracle at risk of missing this target, but it also is running close to falling short of its 50% growth goal for Cloud Infrastructure revenue.

However, Oracle is planning on having Nvidia GB200-based servers generally available in April 2025, and if there is high demand for the new upgraded system, it could serve as a tailwind for IaaS growth in fiscal Q4 as these were not available in Q3.

Oracle Aims for Cloud Infrastructure Growth Above 50%

Oracle’s Cloud Infrastructure (IaaS) business has been a strong driver for Cloud growth, outpacing Cloud revenue growth by at least 22 points for nine consecutive quarters, rapidly expanding its share of Cloud revenue to 44% from just 29% two years ago.

Cloud IaaS revenue also surpassed a $10 billion run rate in Q3, while growing at >50% the last two quarters. Cloud IaaS is an important element in Oracle’s $25 billion target, in that at least 40% of said revenue will be coming from Cloud IaaS.

Oracle’s Cloud IaaS revenue has grown consistently over the past 2.5 years to surpass a $10 billion run rate in Q3. Source: I/O Fund

IaaS’ performance has been driven by the strength of Oracle’s AI offerings. Growth reaccelerated 6 points sequentially in Q2 to 52% YoY, driven by AI, though it dipped slightly to 51% YoY in Q3.

In Q3, Oracle noted that demand was at “record levels”, that GPU consumption for AI training had increased 244% in the last 12 months, and that the company was seeing “enormous demand” for AI inference. Chairman Larry Ellison added that “AI training and multi-cloud database are experiencing hyper growth.” This follows Q2’s 336% increase in GPU consumption for AI training and “record level AI demand.”

Despite these triple-digit points and strong growth commentary, Cloud IaaS revenue’s growth has been quite small sequentially. Q3 saw the highest sequential growth at ~$300 million QoQ, or ~12.5%.

To meet management’s “faster than 50%” growth target for FY25, Q4 would need to match that QoQ revenue increase of at least $300 million; this would place IaaS revenue at $10.3 billion, or up 51.5% YoY from $6.8 billion in FY24. Should the segment return to recent historical trends of rising $200 million sequentially, Oracle would be running extremely close to reporting growth below 50% for the full year.

While demand remains strong and “continues to outstrip supply”, as management puts it, component delays are likely a factor in seeing limited QoQ growth in FY25 despite these extraordinary AI growth figures, as these delays are not expected to ease until Q1 FY26 (likely due to Nvidia’s Blackwell system timing).

Oracle has stated that component delays have “slowed cloud capacity expansion this year,” and expects these to resolve in FY26, easing a primary bottleneck to IaaS growth.  The I/O Fund discussed how Nvidia suppliers were foreshadowing delays in the most recent earnings reports. With IaaS expected to accelerate further from >50% in FY25, the segment could grow to close to $16 billion, or at least $5.5 billion higher than FY25’s projected ~$10.3 billion.

Should IaaS account for ~50% of Cloud revenue for FY26, that would imply Cloud revenue of $32 billion, or an 8 point acceleration to 31% YoY growth from FY25’s Q4-guide-implied $24.4 billion. This is likely what Oracle would need to achieve its $66 billion target, assuming this growth means Cloud grows its revenue share by mid-single digits YoY.

63% Growth in Remaining Performance Obligations

While challenges remain for FY25 with Oracle at risk of missing its $25 billion Cloud revenue target, 2026 is more optimistic, with IaaS promising to add multiple billions in revenue and RPO suggesting the segment could see a strong acceleration.

RPO rose 63% YoY to $130 billion in Q3, compared to 50% YoY growth to $97.3 billion in Q3, a nearly $33 billion QoQ increase. This was driven by record deal activity with $48 billion in signed contracts. Chairman Larry Ellison chalked this up to Oracle’s ability to provide a more cost-effective AI solution to customers: “it really is a technology advantage we have over them. If you run faster and you pay by the hour, you cost less. So that technology advantage translates to an economic advantage, which allows us to win a lot of these huge deals.”

Additionally, Cloud RPO accelerated 10 points to 90% YoY, representing 80% of total RPO, up from 75% last quarter. This places Cloud RPO at around $104 billion, up from nearly $73 billion last quarter. Management said that while the growth in RPO is evidence that the AI training business continues to grow, AI inferencing and database demand also factored into the RPO growth.

RPO continuing to outpace Cloud and IaaS growth bodes well for Oracle’s forecasted revenue acceleration in FY26, and signals strong underlying demand trends with Cloud RPO nearly doubling. 31% of total RPO is expected to be recognized over the next twelve months, or ~$40.3 billion, up 7% from $37.6 billion at the start of FY25.

Oracle noted that this RPO figure did not include any contributions from Stargate yet, which promises a large potential opportunity given the initial commitment of $100 billion up to $500 billion total for the project. Management expects the “first large Stargate contract fairly soon,” though it’s hard to put an exact figure on what management defines as large.

Oracle Continues to Quickly Add Capacity

Oracle is quickly adding data center capacity due to this growth in RPO, with management commenting that they expect to double data center capacity this year to meet the high demand they see from this RPO and additional opportunities from Stargate. Capex is also on track to exit the year at a meaningfully higher rate than expected as Oracle accelerates build-outs.

Oracle noted in Q3 that they “expect fiscal year 2025 CapEx will be a little more than double what it was last year at around $16 billion.” A year ago in Q3 2024, management laid out preliminary capex of $10 billion, which at the time was expected to go towards 100 new data centers and expansions at 66 existing facilities.

This is quickly flowing to the data center, with CEO Safra Catz explaining that Oracle expects its “available power capacity will double this calendar year and triple by the end of next fiscal year” (by mid-2027). Catz added that Oracle’s “live data center count and power capacity is the leading indicator of the conversion of RPO to revenue,” suggesting that Oracle is working to significantly increase capex to quickly translate this surge in RPO to  reported revenue, to meet growth acceleration targets.

To note, this rapid acceleration in capex is negatively impacting cash flows. Oracle generated $11.8 billion in free cash flow in fiscal 2024, but reported negative free cash flow of ($2.66 billion) in Q4 and just $70 million in Q3. On a TTM basis, free cash flow was just $5.82 billion as of Q3, down (53%) YoY, as accelerated capex is far outweighing limited growth in operating cash flow.

Oracle Cloud at Smaller Scale than Peers

Oracle seemed to have taken a slight dig at Microsoft, Amazon and Google in Q3, its hyperscale partners and competitors, stating that Oracle Cloud IaaS revenue grew at “a much higher growth rate than any of our hyperscaler competitors.”

However, this growth is coming off a much smaller scale, considering that Oracle is using IaaS revenue as the comparison – to recap, that’s at a $10.6 billion annualized rate, or ~$2.65 billion in Q3.

Google Cloud, the smallest of the hyperscalers’ clouds, reported 30% YoY growth in revenue to $12.0 billion in Q4. For the full year, Google Cloud revenue grew nearly 31% YoY to $43.2 billion.

Microsoft’s Intelligent Cloud revenue increased 19% to $25.5 billion in its fiscal Q2, with Azure revenue growing 31% YoY. Microsoft’s AI run rate reached $13 billion, up 175% YoY, or 30% higher than Oracle’s entire IaaS segment and half of its entire Cloud segment.

AWS reported 19% growth to $28.8 billion in revenue in Q4, and 19% growth to $107.6 billion for 2024. Put this way, AWS is generating more revenue in one quarter than Oracle’s Cloud is in one year. AWS also generated more than 1.6x Oracle’s Cloud revenue in operating income.

Oracle is by no means operating at the same level as its customers, with Microsoft’s AI run rate dwarfing Oracle’s IaaS business while growing well into the triple-digits. Cloud to Cloud, Oracle is lagging Google’s growth, the smallest of the three hyperscalers, by 5 points in the most recent quarter while at half the scale.

Reaching FY29’s Target Likely Requires Prolonged Cloud Acceleration

Outside of Cloud, Oracle’s other businesses – licensing, hardware, services – have seen minimal growth over the past few years, generating revenue of $31.5 billion in FY22 and $33.2 billion in FY24. Assuming growth at a 3% CAGR through FY29, ex-Cloud revenue would project to approximately $37 billion, meaning Oracle’s Cloud segment would need to reach $67 billion by FY29 to reach that $104 billion forecast.

This would equate to a nearly 29% CAGR from ~$24.4 billion in FY25 to reach $67 billion, or on an annual basis, 31% growth in FY26 and FY27, followed by 26% growth in both FY28 and FY29.

Here’s what this would look like:

Oracle’s Cloud segment would need to grow at a 29% CAGR from FY25 to hit $67 billion, a likely threshold for it to reach the $104 billion target. Source: I/O Fund

Conclusion

Projecting 30% growth for multiple years does not account for execution risk as AI is still quite early. While there are large competitors such as AWS, Azure and Google Cloud, there are also neocloud competitors, such as CoreWeave, that are shaking up the cloud IaaS market with GPU-as-a-service. These neoclouds are entirely optimized for AI, able to capture a higher rate FLOPs utilization (MFUs) -- a metric that is quite important when considering time to market for AI models. My firm recently covered CoreWeave’s IPO for our premium members here.

Stargate will certainly provide a tailwind to Cloud revenue through FY29 should the maximum of $500 billion in investments materialize. Prior estimates from IDC place database and enterprise software spending at a high-single digit share of overall infrastructure spending. This could ultimately represent tens of billions in long-term revenue to Oracle that will complement existing growth in Cloud.

However, analysts do not share the same confidence in Oracle’s ability to meet its long-term targets, with consistent revenue misses in six of the past seven quarters; additionally, it is  already falling behind its $25 billion Cloud revenue target for FY25 after just one quarter.

The I/O Fund is ultimately passing on Oracle and we are instead accumulating small and mid-cap positions that are better poised to benefit from the ongoing AI spending war. Premium and Advanced members receive real-time trade alerts and technical setups in our weekly webinars. Learn more here.

Disclaimer: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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