Oracle Corp (NYSE:ORCL, XETRA:ORC) is seeing a modest improvement in technology spending trends heading into its fiscal second quarter earnings report, according to Jefferies analysts who maintained a ‘Buy’ rating and $400 price target on the company.
The firm’s price target implies significant upside from current levels of $222, and shares have also added 33% this year.
Jefferies noted that its proprietary survey indicated “a slight quarter-over-quarter uptick in infrastructure, apps and AI pipeline growth, but no breakout.”
The analysts wrote that focus in the quarter is on backlog expansion, AI-related debt financing plans, and capital allocation.
The firm expects remaining performance obligations (RPO) to exceed $520 billion, Oracle Cloud Infrastructure (OCI) growth of 74%, and operating margins at 42%.
Jefferies noted that Oracle’s stock has fallen 34% from its September 10 peak, erasing $322 billion in market capitalization, a pullback the analysts described as favorable for the upcoming quarter setup.
Oracle’s fiscal Q2 revenue guidance calls for 14% to 16% year-over-year growth, compared with Jefferies’ 16% estimate.
Organic cloud revenue excluding currency is expected to accelerate to 32% to 36% growth from 27% in the prior two quarters.
On valuation, Jefferies wrote Oracle now trades at 23 times enterprise value/calendar year 2026 earnings before interest and taxes (EV/CY26 EBIT), roughly in line with Microsoft. “We see more upside than downside,” the analysts wrote.
Backlog remains central to Oracle’s long-term growth story, the firm believes. Jefferies noted that more than 90% of Oracle’s $500 billion-plus backlog extends past 12 months, with most stretching beyond 36 months.
Management disclosed $65 billion in additional OCI backlog booked during the quarter, excluding OpenAI, which Jefferies believes helps reduce concentration risk. “OpenAI accounts for 58% of its backlog compared to 39% for Microsoft 16% for Amazon,” they noted.
In infrastructure, consensus estimates call for IaaS revenue to rise 74% year over year in fiscal Q2, up from 55% in fiscal Q1.
Jefferies also highlighted concerns about funding Oracle’s significant AI-driven capital spending plans. “The timing mismatch between upfront capex and delayed monetization creates near-term pressure,” the analysts wrote.
Oracle ended fiscal Q1 with $80 billion in net debt and has reportedly been in talks to raise up to $38 billion more to support data center construction.
On margins, the analysts pointed to management commentary that clarified AI infrastructure gross margins of 30% to 40%, countering speculation of mid-teens levels.
Overall margin pressure is expected as Oracle shifts more heavily into lower-margin AI infrastructure. Jefferies projected non-GAAP operating margins to bottom at around 32% in fiscal 2028 before improving.
Oracle will report its fiscal Q2 earnings on Wednesday.