In September of last year, during Oracle's (ORCL +5.13%) fiscal 2026 first-quarter earnings results, management issued stunning guidance for its cloud infrastructure division. This segment includes the company's data center business, which essentially rents graphics processing units (GPUs) to companies deploying artificial intelligence solutions.
At the time, Oracle said cloud infrastructure revenue would grow 77% in the current fiscal year to $18 billion and then explode to $144 billion by fiscal year 2030. Investors loved it and bid the stock up in a fervent rally.
The rally would be short-lived, as AI concerns would affect the entire symbiotic ecosystem. But now, a recent $110 billion catalyst could make Oracle's fiscal year 2030 guidance more likely.
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Why Oracle's guidance came with challenges
After the strong September quarter, investors quickly realized that the devil was in the details. At the time, Oracle had also reported $455 billion in remaining performance obligations (RPOs), representing revenue under contract but not yet collected. The high number of RPOs gave the company and investors confidence in Oracle's guidance.
However, it eventually came to light that $300 billion of those RPOs were from OpenAI, the parent company of ChatGPT, which had struck a five-year deal with Oracle for data center capacity. OpenAI has many outstanding data center commitments, totaling $1.4 trillion over the next eight years.
This made investors concerned because the company -- which is, albeit, the fastest-growing consumer app ever -- is still only generating about $20 billion in annual recurring revenue. Meanwhile, Oracle was raising significant debt to complete its data center build-out, creating a significant risk if OpenAI is unable to meet its commitments.
NYSE: ORCL
Key Data Points
In its fiscal 2026 second-quarter earnings report, the company raised its full-year capital expenditure guidance from $35 billion to $50 billion and reported negative free cash flow, which did little to quell investor concerns that it might be taking on too much risk.
The $110 billion catalyst
The good news for Oracle is that OpenAI recently raised a successful $110 billion private financing round, led by investors including Amazon, Nvidia, and SoftBank, assigning the company a pre-money valuation of $730 billion. While there had been rumblings about this raise, nobody was certain it would get done.
Furthermore, this should provide the company with a solid runway before likely pursuing an initial public offering to raise additional capital. OpenAI also plans to launch advertising on ChatGPT. Evercore ISI analyst Mark Mahaney previously wrote in a research note that this business could grow to $25 billion annually if OpenAI executes.
Mahaney based his assumptions on ChatGPT's projected scale by 2030 and on how other marketing platforms have historically generated revenue from ads. A report from CNBC in late February, citing anonymous sources, said OpenAI believed it could grow total company revenue to $280 billion annually by 2030.
So you start to see how OpenAI could potentially fund all of its AI infrastructure commitments, given its recent capital raise and revenue projections, though I'm sure those projections vary depending on who you ask.
In the third quarter, Oracle announced RPOs of $553 billion, exceeding Wall Street estimates and giving investors more confidence that there is strong demand for its data centers and that the company's capex will turn into good long-term investments.
These results, along with greater confidence that OpenAI can meet all of its commitments, have lifted the stock. In fact, according to data from Visible Alpha, Wall Street analysts project that the company will achieve $158 billion in cloud infrastructure revenue in its fiscal year 2030. Now, the estimate is based on models from only four analysts. While there are many more covering Oracle, it's not a bad start.
Additionally, if Oracle grows cloud infrastructure revenue in the current quarter at the same rate it just did in the third quarter, the company will surpass $18 billion in revenue, meeting management's guidance.
After the stock was beaten down over the past six months, I think investors can at least start nibbling on Oracle, given that the risk-reward setup has become much more favorable.
