BofA stays bullish on a cloud titan that is down 25%

BofA stays bullish on a cloud titan that is down 25%

Opeyemi Babalola

Mon, September 7, 2026 at 7:33 PM GMT+3 5 min read

• BAC -0.06%
• ORCL +3.08%

Wall Street's two biggest markets are telling opposite stories about the same company right now. Equity investors keep buying every dip. Credit investors keep demanding more insurance against a default that stock buyers barely seem to consider.

Oracle Corporation (ORCL) sits at the center of that disagreement. Shares have fallen 25% since the company's last earnings report, yet BofA Securities is reiterating a Buy rating and a $240 price target ahead of Thursday's fiscal first-quarter results, according to the BofA note shared with TheStreet.

That target implies nearly 65% upside from current levels. BofA bases its $240 target on a 26.5x calendar-year 2027 earnings multiple, a notable premium over the broader software group's 19x average, arguing that rapid backlog conversion justifies the higher price tag.

This is not the first time Oracle's spending has spooked investors. Shares fell 11% in a single session in December 2025 after a smaller capex increase surprised the market, according to Fortune.

The pattern repeated in June 2026, when a bigger than expected capex figure triggered Oracle's steepest one day drop in six months, according to Bloomberg.

Related: BofA names 2 SpaceX alternatives with massive upside

The math behind BofA's confidence

BofA models cloud infrastructure revenue growing 116% year over year this quarter. That would push Oracle's total revenue growth to 28%, up from 21% in the prior quarter, as parts of Oracle's massive contract backlog begin converting into actual sales.

The acceleration matters because it would be the first hard evidence that Oracle's $638 billion backlog, the largest in enterprise software, is turning from promises into cash.

CNBC reported last week that Wall Street holds 42 buy ratings on the stock against just one sell heading into the print, with consensus estimates pointing to similarly steep growth.

Oracle's slower growing software business is quietly holding up too. BofA expects cloud applications revenue to grow 12.8% this quarter, accelerating from 10.3% in the prior period, while the database business keeps expanding into health care and other industry niches, according to the note.

That legacy engine gives Oracle a profitability cushion the AI infrastructure bet does not have on its own.

That growth is not free. BofA expects gross margin to slip to 63.8% and operating margin to 40%, down from 68.7% and 41.8% a year earlier, as the infrastructure business becomes a bigger share of revenue.

Faster growth and thinner margins are arriving together, which is exactly the tension investors are trying to price.

Options traders are not nearly as settled as those ratings suggest. The options market is pricing an 11% swing in either direction once results land Thursday, according to GuruFocus. That is an unusually wide range for a company Oracle's size.

The cost of chasing that growth

BofA expects capital spending to jump 146% this quarter to $21 billion, pushing free cash flow to negative $3.7 billion in the same period that is supposed to feature accelerating growth.

Other analysts think the bleeding runs deeper. S&P Global projects Oracle's full fiscal year free cash flow deficit will reach $42 billion, according to the rating agency's own analysis, nearly 40% wider than BofA's estimate.

When credit analysts and equity analysts cannot agree on how much cash a company will burn, that gap says something about how hard the model has become to pin down.

Why credit investors are less convinced

S&P Global downgraded Oracle to BBB-, one notch above junk status, in July, citing the company's reliance on OpenAI, according to the agency's rating action.

OpenAI accounts for roughly half of Oracle's $638 billion backlog, a level of customer concentration no other major cloud provider carries.

That concentration makes Oracle structurally different from its biggest rivals. Amazon, Google and Microsoft can shift excess data center capacity to their own AI products if a partner pulls back.

Oracle has no equivalent cushion, which is why one customer's fortunes now weigh so heavily on its credit profile.

Oracle is also borrowing into a market that treats it differently than its peers. Fortune reported that Alphabet, Amazon, Meta, Microsoft and Oracle have combined for hundreds of billions of dollars in bond issuance to fund AI infrastructure, yet Oracle's offerings have drawn more investor skepticism than Meta's or Alphabet's, according to Axios.

More Bank of America:

The bigger gamble behind Big Tech's AI bet

Oracle's earnings will not settle that argument by themselves. Fortune's reporting on the hyperscaler borrowing spree points to a pattern in infrastructure booms stretching back two centuries: heavy spending cycles, from railroads to fiber optic cable, tend to end in bankruptcies and consolidation before eventually rewarding whichever companies survive.

Oracle is betting it will be one of the survivors. Thursday's results are the clearest test yet of whether its revenue can catch up to its spending before a stumbling customer or tighter credit terms force the issue.

Investors watching the headline growth number would do well to watch the cash flow line just as closely.

Related: Tech titan fell 9%: BofA says buy the dip

This story was originally published by TheStreet on Sep 7, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.