By Christopher Combs, AI Assisted
Chief Investment Officer
Silicon Valley Capital Partners
December 2025
Executive Summary
Oracle is pivoting from legacy enterprise software to a leading position in the global AI infrastructure boom. It has amassed a massive backlog of cloud/AI commitments — reported at US$455 billion as of Q1 FY2026, with management suggesting pro‑forma backlog could exceed $500 billion in the near term.
This backlog — large, multi‑year, high‑visibility, and tied to the most GPU‑intensive AI workloads — gives Oracle unique visibility into future demand. It positions Oracle Cloud Infrastructure (OCI) to grow from about 5% of global cloud infrastructure market today to potentially 16% by 2029, making Oracle plausibly the “fourth global hyperscaler.”
Given this visibility, data‑center and AI‑infrastructure capex is effectively prepaid by long‑term contracts, creating an unusually favorable ratio of invested capital to committed revenue. Under conservative assumptions, this translates into ~ $17 of committed revenue for every $1 of capex — a remarkably high ROI that normalizes concerns around leverage.
From our analysis, Oracle is undervalued today by ~40%. The 12‑month forward consensus analyst target of $343 implies upside of more than 70%.
1. Oracle’s Reacceleration: From Maintenance to a Cloud/AI Growth Engine
1.1 Backlog Jump — Visibility into Multi‑Decade AI Demand
In FY2026 Q1, Oracle disclosed that Total Remaining Performance Obligations (RPO) surged 359% YoY to $455B, driven by multi‑billion‑dollar AI and cloud contracts. Management signaled further deals underway, indicating RPO may exceed $500B.
This backlog transforms Oracle from an opportunistic cloud participant into a long‑duration AI‑infrastructure utility with unusually strong forward demand visibility.
1.2 Market Share Growth: From 5% to 16% by 2029
AWS, Azure, and Google Cloud hold ~63% of global cloud spend, leaving room for challengers. Analysts estimate OCI could rise from ~5% market share today to ~16% by 2029, becoming the fourth global hyperscaler.
This growth assumes Oracle converts backlog into deployed infrastructure, led by rising AI demand from OpenAI, xAI, Meta, TikTok, and enterprise clients.
1.3 Revenue Growth Outlook
Oracle’s FY2025 results showed strong cloud‑services growth. FY2026 guidance indicates ~77% OCI revenue growth, with long‑term scenarios placing OCI revenue at ~$144B by 2030 — a forecast once considered implausible for Oracle.
2. Return on AI Investment: Why Capex Has a 17:1 Revenue Lever
Critics cite Oracle’s capex levels and leverage, but this misreads the model. Oracle builds only after securing multi‑year AI contracts, turning capex into contracted revenue rather than speculative investment.
2.1 Structural Drivers of High Capital Efficiency
- Infrastructure built only after long‑term contracts are secured.
• Backlog is long‑duration and high‑visibility.
• AI workloads run at very high utilization, producing more revenue per unit of hardware.
• Oracle’s pipeline is now the largest AI‑cloud pipeline in the industry.
2.2 Deriving the ~17:1 Revenue Ratio
Inputs and rationale:
• AI‑infrastructure capex is front‑loaded to meet the $455B backlog.
• Backlog represents committed multi‑year revenue.
• AI clusters run at high, predictable utilization with renewal probability.
Even conservative amortization yields ~17× committed revenue per $1 invested — one of the strongest ROIC ratios in global infrastructure.
2.3 Implications for Debt
Debt concerns are overstated. Debt funds contracted infrastructure, not speculative buildouts. Oracle’s long‑term contracted cash flows create utility‑like stability and rising ROIC.
3. Oracle as an Indirect, Leveraged Way to Access OpenAI
Investors cannot buy OpenAI directly. Microsoft’s exposure is diluted across its portfolio. Oracle provides contractual exposure to OpenAI’s compute scaling without model, regulatory, or product‑cycle risk.
As OpenAI’s training cycles expand and inference workloads scale, OCI consumption grows non‑linearly — Oracle benefits every step of the way.
4. Risk Factors & Counterarguments
- “Too much debt”: mitigated by high‑visibility contracted revenue.
- “Backlog may not convert”: AI labs have large, sticky, ongoing compute requirements.
- “Cloud saturation”: AI demand is expanding beyond enterprise workloads.
- “Rich valuation”: Oracle trades ~42% below 2025 highs at ~25× FY27E — not reflective of backlog or capital efficiency.
5. Conclusion
Oracle is rapidly transforming into one of the world’s most capital‑efficient AI infrastructure providers. With a 17:1 revenue‑to‑capex ratio, the largest AI backlog globally, and deep integration with top AI labs, Oracle is positioned for multi‑year structural outperformance.
Our analysis shows Oracle is undervalued by ~40%. With a consensus price target of $343 indicating 70%+ upside, market pricing materially understates Oracle’s structural earnings power and its role as the next major hyperscaler.
If Oracle executes its backlog deployment, the upside could exceed current projections.
Appendix: Key Public References
- Oracle Investor Relations (FY2026 Q1, FY2025 results)
• Reuters
• Synergy Research Group
• The National CIO Review
• The Motley Fool
• Investors Business Daily
• AInvest
• Yahoo Finance