Morgan Stanley maintains Equal-weight on Oracle after earnings

12 Sep 2026, 18:03 · The Fresno Bee

Oracle (ORCL) has been a goliath in enterprise technology for decades. Lately, Oracle Cloud Infrastructure (OCI) has emerged as the primary growth engine because of the AI boom.

Oracle just delivered a very solid quarter. Cloud infrastructure revenue grew 121% year over year. Total revenue hit $19.3 billion, up 30%. The company booked more than $30 billion in new AI cloud contracts in a single quarter. Remaining performance obligations reached $664 billion, up $209 billion year over year.

Impressive, right?

Yet the stock is still down 20.90% year to date and 49.83% over the past year, according to Yahoo Finance. How and why?

That gap between operational excellence and stock performance is the Oracle story in 2026 (we’ll get into it in a moment). Then, Morgan Stanley reviewed the Q1 fiscal 2027 results in a note shared with TheStreet.

The firm kept its Equal-weight rating and $210 price target. And the headline tells it all: OCI delivers, gross margin still to come.

Morgan Stanley’s story on Oracle is impressive execution, but the path to profitability remains the outstanding question.

Also Read: Oracle Corporation Latest News

Here’s what Oracle’s Q1 fiscal 2027 actually showed

The Sept. 10 results were really strong across most top-line metrics, according to Oracle’s earnings release.

Total cloud revenue reached $11.6 billion, up 62% year over year (YoY).
Cloud infrastructure, the OCI segment that is the center of the AI debate, grew 121% to $7.4 billion, beating consensus by approximately 3%.
The company has delivered 850 megawatts of additional data-center capacity and deployed more than 300,000 GPUs to AI cloud customers since Q4.
Non-GAAP EPS of $1.92 grew 30% year over year.

The backlog picture is remarkably strong. RPO of $664 billion grew 46% YoY and $26 billion sequentially, with management projecting about half of the RPO to convert to revenue over the next 36 months.

Customer prepayments with a significant financing component contributed $11.4 billion of deferred revenue in Q1 alone, compared to $4.6 billion across all of fiscal year 2026.

“Customer demand for AI Cloud Training and Inferencing Services continues to grow faster than supply,” the company said in its earnings release.

For Q2 fiscal 2027, Oracle guided total revenue growth of 30% to 34% and total cloud revenue growth of 65% to 71%. Full-year fiscal 2027 guidance was nudged to at least $90 billion in revenue, with non-GAAP EPS of $8.10.

What Morgan Stanley liked and what is still missing

Morgan Stanley’s note has answers to both.

On the positive side, OCI capacity delivery was diversified across multiple sites rather than dependent on any single location. Shackelford, New Mexico, Wisconsin, and Michigan are highlighted sites that do not affect fiscal 2027 guidance, management said.

GPUs up for renewal in Q1 achieved an average 20% premium to prior contracts, indicating pricing power rather than desperation. The $20B at-the-market equity program was completed at $19.9B, removing a share overhang that had been weighing on the stock.

And the RPO expansion of $26B sequentially came without any increase to the fiscal 2027 capital expenditure guidance of $90 billion to $95 billion.

More AI Stocks:

The concern is in the gross margin line. Non-GAAP gross margin fell to 61.0%, down approximately 770 basis points YoY, just below consensus. The heavy upfront investment in GPU infrastructure is understandably weighing on margins, but it also raises questions about when profitability will begin to inflect.

“When will impressive execution on the capacity build-out translate to more impressive flow-through on profitability?” Morgan Stanley asked.

The answer management offered was “gross margin stabilization” as capacity comes on stream.

But the firm wants to see evidence rather than guidance, which explains the decision to maintain the Equal-weight rating rather than upgrading.

Shutterstock

The debt question has weighed on Oracle all year

Yahoo Finance data show the stock hit a record high of $345.72 a year ago (Sept. 8, 2025) and has since lost more than half its value.

The reason is not the cloud infrastructure business. That sector is executing well. It is the debt load required to build that infrastructure.

Oracle took on enormous capital expenditure commitments to compete with AWS, Azure, and Google Cloud for the AI buildout.

Free cash flow has been negative. The company raised $20 billion through equity issuance. Fiscal 2027 and 2028 are described by management as peak capital expenditure years at $90 billion to $95 billion annually.

What comes next for Oracle investors

For investors who can underwrite the view that these are productive investments that will generate strong returns once the $664 billion backlog converts to revenue, the stock is attractive.

For investors who worry that the economics of GPU-as-a-service are less favorable than assumed, the gross margin compression is the concern signal that validates their hesitation.

Morgan Stanley‘s Oct. 28 Financial Analyst Day is the event the firm flagged as the next major information opportunity.

Management is expected to provide more detail on the infrastructure build timeline, gross margin trajectory, and the path from backlog to earnings. That is where we are likely to see the Equal-weight rating get reassessed.

With a 30% single-quarter revenue growth rate and 121% cloud infrastructure expansion, I see Oracle valued on the assumption of continued uncertainty.

If the Oct. 28 analyst day removes that uncertainty, Oracle’s position changes quickly.

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published September 12, 2026 at 11:03 AM.