Barclays lowers Oracle's target price due to profit margin pressure

Investing.com - Barclays downgraded Oracle’s target price from $310 to $230 in a report on Monday, warning that the accelerating AI-related growth will also bring near-term margin pressures.

Get in-depth stock research exclusively on InvestingPro

Analyst Raimo Lenschow told investors that Oracle’s third quarter should show “significant revenue acceleration driven by AI,” but also noted that the same growth “could pressure profit margins due to upfront costs/time factors.”

Lenschow believes AI revenue should “perform slightly better than market expectations” because more capacity will come online in Q3, and the foreign exchange trend is “more favorable than guidance.”

However, he warned that gross margins and EPS face headwinds because “the timing of additional large-scale capacity expansion investments and leasing costs in the second half of 2026 will have a negative timing effect.”

Barclays expects this will create divergence among investors, stating that “bulls (including us) will focus on the company’s sustained growth momentum, while bears will at least have margins to scrutinize.”

The firm added that the third quarter “will not be a decisive quarter from any perspective.”

Lenschow also believes Oracle’s AI infrastructure buildout has been misunderstood, saying investors “need to rethink how they view ORCL and other AI infrastructure players,” as major deals are actually “a series of AI data center agreements that should be viewed from a project financing perspective.”

He stated that this structure allows Oracle to flexibly adjust capacity or timelines without unnecessary capital expenditure.

Despite market sentiment weakening toward AI infrastructure peers, Barclays maintains an overweight rating on Oracle, noting that the “risk/reward ratio is quite attractive” because Oracle is evolving into “a very different company in the future.”