The Oracle story

What drives the business

• Oracle’s longstanding database and enterprise software business supplies the customer base for its cloud transition, with substantially all software license customers also purchasing support contracts.
• Its cloud and software business includes Oracle AI Database, Fusion applications and NetSuite, alongside separate hardware and services businesses, and migrating software support customers contributed $5.4 billion to annualized cloud revenue over the past three fiscal years.
• Oracle supports deployments in its own cloud, customers’ facilities and other public clouds, allowing customers to migrate without moving all their systems at once.
• In the quarter to August 2026, cloud infrastructure revenue grew 121% to $7.4 billion, while cloud applications revenue grew 10% to $4.2 billion.
• Oracle booked more than $30 billion of additional AI cloud contracts in the quarter to August 2026 and delivered 850MW of additional datacenter capacity and more than 300,000 GPUs, linking revenue growth to its ability to bring contracted computing capacity into service.

What the price assumes

At $132.60, the reverse DCF implies operating earnings growth of 11.4% a year for ten years using a 10.2% discount rate, with operating earnings standing in for free cash flow.

That compares with delivered operating earnings growth of 2.7% a year over the last 10 years and the TenQ check’s 3.3% bar, which moves the historical rate halfway toward 4%.

Revenue growth accelerated to 21.6% over the last twelve months from a three-year annual pace of 10.5%, but negative free cash flow means the model measures an earnings assumption rather than demonstrated cash generation after investment.

Value ORCL on your own assumptions

What could change the story

• Turning the $664 billion backlog into revenue depends on securing and managing datacenter capacity and sourcing GPUs, both risks Oracle identifies in its release.
• Operating cash flow in the quarter to August 2026 benefited from customer prepayments with a significant financing component, so cash receipts should not be confused with completed delivery of contracted services.
• Total debt of $129.5 billion against $37.1 billion of cash and short-term investments leaves funding important, and Oracle passed only 1 of 6 TenQ financial health checks.
• The $20 billion common stock issuance funded expansion but diluted ownership, alongside a share count that increased 5.4% over 3 years.
• Oracle’s return on capital employed of 9.0% fell below the TenQ check’s 10.0% bar, highlighting the distinction between strong profit margins and returns on the capital committed to expansion.

What to watch next

• For the second quarter of fiscal 2027, Oracle expects total revenue growth between 30% and 34% in USD and constant currency, and cloud revenue growth between 65% and 71% in USD.
• Its fiscal 2027 guidance calls for revenue of at least $90 billion and non-GAAP earnings per share of $8.10, making infrastructure revenue growth and capacity deliveries important measures of execution.
• The next releases can show whether backlog converts into revenue while capital spending, customer prepayments and free cash flow reduce or extend dependence on external financing.

Sources

• Oracle's earnings release, filed with the SEC
• Its latest 10-Q or 10-K, for the risk factors
• The ORCL stock report, for every figure and check