Oracle may have joined the artificial intelligence party a little late, but it has nonetheless managed to position itself as a major player. We can see that the company’s AI plans are going forward, thanks to a recent announcement concerning Stargate.
OpenAI, Oracle, and Vantage Data Centers, a provider of hyperscale data center campuses, recently announced plans to develop a data center campus outside Milwaukee in Port Washington, Wisconsin.
The new campus will consist of four data centers, which will have a power capacity of close to 1 GW, and is part of OpenAI and Oracle’s partnership to invest up to 4.5 GW of additional Stargate capacity. According to the companies, construction is scheduled to begin soon and is expected to be completed by 2028.
Many investors are uncertain whether Oracle’s substantial investments in AI infrastructure projects will yield good returns, and Bank of America has an answer to their question.
Bank of America analysts Brad Sills and Madeline Brooks updated their opinion on Oracle (ORCL) stock and built a new financial model. They said that Oracle’s entry into AI compute marks its transition into a fourth hyperscaler.
To address the question about investments delivering attractive returns, analysts built a bottom-up model of the OpenAI deployment that replicated the cost stack, utilization, and cash flow profile of a full-scale compute contract.
They said, “Our analysis yields a project level [initial rate of return] of 9% initially, expanding to 16% upon contract renewal. These results suggest that foundational project economics are expected to shift from capital-intensive strategic entry points into cash-yielding infrastructure assets.”
Analysts noted that Oracle’s financing approach further de-risks execution, as the company has funded most projects through low-cost debt.
Sills said that Oracle is structuring AI compute contracts as non-cancelable, non-modifiable, take-or-pay contracts, ensuring stable cash flows and cost visibility. This approach contrasts sharply with Neoclouds and other hyperscalers, which are building speculative capacity. He concluded that these dynamics support Oracle’s emergence as a profitable, AI-native hyperscaler.
Analysts reiterated a buy rating with a price target of $368, based on their estimate of the enterprise value-to-sales ratio for calendar year 2027 of 12.4x, or 0.5x adjusted for 25% growth, a premium to the large-cap software group trading at 8x or 0.6x for 16% growth.
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