Morgan Stanley Maintains Equal-Weight Oracle Rating as Cloud Infrastructure Surges

Oracle Corp. posted strong top-line results for its first quarter of fiscal 2027, propelled by aggressive enterprise adoption of its cloud computing services. Following the earnings announcement, Morgan Stanley maintained an Equal-weight rating on the software giant alongside a $210 price target, emphasizing that while cloud infrastructure deployment is expanding rapidly, profitability metrics have yet to follow suit.

The enterprise technology firm reported total revenue of $19.3 billion for the quarter, reflecting a 30% increase year over year. Total cloud revenue expanded 62% to reach $11.6 billion, while Oracle Cloud Infrastructure (OCI)—the company's core artificial intelligence hosting division—surged 121% to $7.4 billion, topping consensus estimates by roughly 3%. During the three-month period alone, Oracle secured more than $30 billion in new AI cloud contracts.

Demand for computing power drove substantial additions to physical and operational capacity. Since the fourth quarter, Oracle has added 850 megawatts of data-center capacity and brought more than 300,000 GPUs online for AI cloud customers. The company’s remaining performance obligations (RPO) rose 46% year over year and $26 billion quarter-over-quarter to $664 billion, with executives projecting that roughly 50% of that total will translate into revenue within 36 months. Additionally, customer prepayments with significant financing components added $11.4 billion to deferred revenue in Q1, compared to $4.6 billion across the entirety of fiscal 2026.

In its earnings statement, management noted that customer appetite for AI training and inferencing capacity continues to outstrip available supply. Looking ahead to the second quarter of fiscal 2027, Oracle projected overall revenue growth between 30% and 34%, with cloud revenue expected to jump 65% to 71%. For the full fiscal year, the company updated its revenue target to at least $90 billion and projected non-GAAP earnings per share of $8.10.

Despite operational momentum, the stock has experienced significant pressure. As detailed in coverage by Yahoo Finance, Oracle shares remain down 20.90% year to date and 49.83% over the trailing 12 months, having fallen sharply from a record high of $345.72 set on Sept. 8, 2025. The decline stems primarily from investor caution regarding the massive capital investments and debt required to build out infrastructure to compete against rival hyperscalers.

Margins reflect the financial burden of the buildout. Oracle’s non-GAAP gross margin fell 770 basis points year over year to 61.0%, slightly missing analyst expectations. Morgan Stanley highlighted this gap, questioning when execution on capacity will yield better profitability flow-through. Management addressed these concerns by pointing to anticipated gross margin stabilization as data centers become fully operational, noting that capacity is being deployed across diversified sites including Shackelford, New Mexico, Wisconsin, and Michigan. Furthermore, GPU contract renewals in Q1 garnered an average 20% premium over prior rates, while a $20 billion at-the-market equity program was completed at $19.9 billion.

Oracle's management expects capital expenditures to peak in fiscal years 2027 and 2028 at $90 billion to $95 billion annually. Morgan Stanley designated the company's upcoming Financial Analyst Day on Oct. 28 as the next major opportunity for investors to evaluate management's roadmap for converting its $664 billion backlog into net earnings and stabilizing profit margins.