JP Morgan downgraded Oracle's rating to "Neutral," expecting accelerated expansion of cloud capacity, increased capital expenditure, and execution risks

JP Morgan's research report points out that Oracle (ORCL.US) is rapidly expanding its cloud capacity, heavily investing in next-generation data centers, and deepening partnerships with key AI model developers and companies seeking computing power. Management views AI as a driving force for transformational growth, believing it can revitalize Oracle's cloud revenue growth trajectory, enhance the utilization of its infrastructure assets, and strengthen its competitive positioning against hyperscale peers. However, this strategy involves significant upfront capital expenditures and execution risks, requiring rigorous financing and balance sheet management to ensure long-term value creation and avoid damaging credit quality.

Oracle's newly formed management team recently outlined ambitious long-term goals, including achieving $166 billion in cloud infrastructure revenue by 2030, representing a five-year compound annual growth rate of 75%. The company also guided that the gross margin for AI products will reach 30% to 40%, alleviating concerns raised by previous reports of lower profitability.

While JP Morgan acknowledges Oracle's potential to achieve its plans, given the company's enormous capital requirements and limited visibility into its financing strategy, JP Morgan has downgraded Oracle's rating from "Overweight" to "Neutral."