Oracle is evolving from a traditional software company into the world’s fourth-largest cloud infrastructure provider, according to a Bernstein research note published on Sept. 2. The firm said Oracle Cloud Infrastructure Gen 2 posted $18.1 billion in FY26 revenue, up 77% from a year earlier and faster than the 50% growth recorded in FY25. On Bernstein’s estimate, OCI has now moved ahead of Alibaba Cloud in revenue and trails only Amazon Web Services, Microsoft Azure and Google Cloud.
Bernstein maintained an Outperform rating on Oracle and kept its $325 price target. The note said that target implies 130% upside from the current share price. In Bernstein’s view, the market has been too concerned about OCI’s profitability and the cash requirements tied to Oracle’s AI data center push. The firm argued that Oracle’s core businesses, including database products, Fusion ERP and NetSuite, are generating enough cash flow to support that investment cycle.
OCI growth outpaced larger cloud peers
Bernstein described OCI as Oracle’s fastest-growing business segment. It estimated FY26 OCI revenue at $18.1 billion, up 77% year over year. Over the same period, AWS grew 18%, Azure grew 28%, and Google Cloud grew 34%.
OCI remains smaller than those three providers in absolute size, but Bernstein said the growth gap shows Oracle is gaining share at a rapid pace. The note also said OCI growth is still accelerating, rising from 50% in FY25 to 77% in FY26, while management expects another step-up in FY27.
Bernstein tied that expansion to three factors: large-scale AI data center deployment, a surge in sovereign cloud demand, and continued progress in Oracle’s multi-cloud database strategy.
Core software cash flow seen as the buffer for capex
The biggest point of debate around Oracle is the scale of spending needed for AI data centers. Bernstein said Oracle’s capital expenditures reached $55.6 billion in FY26 and projected that number to rise to $92.8 billion in FY27 and $97.6 billion in FY28. The market’s concern has centered on returns and pressure on cash flow.
Bernstein’s response was that investors are overlooking the cash generation of Oracle’s core operations. In FY26, software revenue reached $58.5 billion, up 19% from a year earlier, while the share of cloud within that total increased from 50% in FY25 to 58%. SaaS revenue came in at $15.9 billion, up 11%, and PaaS/IaaS revenue reached $18.1 billion, up 77%. Bernstein said SaaS and database products carry margins that are well above OCI and provide a stable source of cash.
Oracle posted FY26 operating profit of $28.9 billion, up 15.5%, with an operating margin of 42.9%. Bernstein expects FY27 operating profit to rise to $37.9 billion, with margin holding at 42.0%.
Revenue mix keeps shifting toward growth businesses
Bernstein split Oracle’s software revenue into three groups: growth, stable and declining. In FY26, growth businesses accounted for 38% of software revenue, up from 33% in FY24. Stable businesses were 40%, down from 44%, while declining businesses fell to 22% from 24%.
The firm said that mix points to an improving structure, with growth segments expanding and shrinking segments taking a smaller share.
OCI Gen 2 and Oracle’s strategic back-office products were identified as the main drivers inside the growth category. Bernstein estimated FY26 strategic back-office revenue at about $9.9 billion, up 15%. Within that total, Fusion ERP contributed about $4.3 billion, up 15%; NetSuite brought in about $4.2 billion, up 13%; and Fusion HCM added about $1.4 billion, up 21%. The report said growth in these businesses has slowed from prior years, but it still remains above Oracle’s company-wide pace.
In the stable category, database products remain central, covering both traditional on-premises deployments and cloud database services. Bernstein estimated cloud database services generated about $3 billion in FY26 revenue, making them an important OCI growth source outside AI data centers.
AI data centers, sovereign cloud and multi-cloud database strategy
Bernstein estimated Oracle’s AI data center-related revenue at roughly $6.6 billion in FY26, or 36% of total OCI revenue. The note also said sovereign cloud is another growth engine that the market is underappreciating. Governments in multiple countries want cloud services to run inside national borders, and Bernstein said Oracle’s white-label sovereign cloud architecture gives it a differentiated position.
The firm also pointed to Oracle’s multi-cloud database strategy as a source of incremental revenue. Products including Oracle Database@AWS, Oracle Database@Azure and Oracle Database@Google Cloud are bringing database customers into cloud environments and allowing Oracle databases to run on rival clouds.
Bernstein says funding pressure looks more manageable than feared
On capital spending, Bernstein said Oracle is using a flexible approach. AI data center contracts cannot be canceled, but the timing of hardware purchases can still be managed. The note said Oracle can wait until data centers are delivered before buying servers and cooling equipment, reducing the amount of capital tied up too early.
At the end of FY26, Oracle held about $31.3 billion in cash. Bernstein said that cash balance, combined with operating cash flow and debt financing capacity, leaves the funding gap smaller than the market has been pricing in.
Its central call was that Oracle is using profits from its core businesses to fund cloud expansion, shifting from a software company toward an infrastructure company. Bernstein also said OCI has already surpassed Alibaba Cloud in scale and, if current growth rates hold, could narrow the gap with Google Cloud faster than the market expects. The $325 price target implies roughly 25x FY28 adjusted earnings, according to the note.
Report context and disclaimer
The source article said the piece was compiled and interpreted by Chaoxiang Research based on a third-party brokerage report from Bernstein dated Sept. 2, 2026, together with public market information. It added that the rating, price target, earnings forecasts and related judgments cited in the article were the views of the brokerage analyst and represent only the position of that institution, not that of Chaoxiang Research, and do not constitute investment advice.
The article also said markets carry risk, investment decisions should be made independently, and the report should not be used as the basis for buying or selling any security.