TLDR
- Oracle stock jumped over 5% as Deutsche Bank and HSBC defended the company against bearish concerns about AI infrastructure spending
- Deutsche Bank estimates even without OpenAI revenue, Oracle would only see a $4 EPS reduction to $17 and $10 billion FCF reduction for FY30
- Analysts argue Oracle is getting little credit for its OpenAI business at current $200 share price
- HSBC maintains Buy rating with $382 price target, seeing 92% upside potential
- Both banks addressed investor concerns over Oracle’s $500 billion remaining performance obligations and data center lease commitments
Oracle shares climbed more than 5% at Wednesday’s open after two major banks stepped in to defend the company. Deutsche Bank and HSBC both argued that investor fears about artificial intelligence spending have gone too far.
The stock has taken a beating recently. It’s down about 41% from its September peak, even though it’s still up 22% year-to-date.
Deutsche Bank analyst Brad Zelnick made a counterintuitive point. He said “the bear case looks… bullish.”
Here’s what that means. Even if Oracle makes zero extra money from OpenAI, the company would only take a modest hit.
Zelnick’s team ran the numbers. They estimate a $4 per share reduction in earnings to $17 for fiscal year 2030. Free cash flow would drop $10 billion to $31 billion.
At the current price around $200 per share, Oracle is barely getting credit for the OpenAI relationship. That’s the argument from Deutsche Bank.
Data Center Concerns
Investors have been worried about something else too. Oracle has committed to massive long-term lease obligations for data centers.
Deutsche Bank acknowledged the concern. But they think there’s more wiggle room than people realize.
The bank estimated that even in a bad scenario, Oracle could hit earnings of around $15 per share. Free cash flow would be roughly $26 billion.
HSBC took a similar stance. The firm kept its Buy rating and $382 price target.
That target implies 92% upside from current levels. HSBC analyst isn’t backing down.
Performance Obligations Explained
Oracle recently disclosed over $500 billion in remaining performance obligations. That number confused investors.
HSBC said markets have been “filling in the blanks with little concrete information.” That’s created unnecessary panic.
The company has guided to a 30-40% gross margin on its AI infrastructure business for fiscal 2030. HSBC called this reasonable.
Combining lower-margin cloud services with slower-growing software isn’t a red flag. According to HSBC, “it is math.”
The bank believes Oracle is “skilfully planning to meet these commitments.” They see the company executing on its strategy.
Deutsche Bank holds a $375 price target. That’s based on current valuation metrics.
Oracle trades at about 27 times forward earnings. That multiple looks high because of upfront AI scaling costs.
But those costs are temporary. The real opportunity from the OpenAI backlog should more than make up for them.
Of 45 analysts covering Oracle, 32 rate it Buy or higher. The analyst community remains largely positive.
HSBC and Deutsche Bank both stress that the market is missing the bigger picture. Oracle’s AI infrastructure investments are front-loaded expenses.
The revenue will come later. That’s how large infrastructure deals work.
Oracle has guided to a 30-40% non-GAAP gross margin on AI infrastructure for fiscal 2030.
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