Oracle has a big contract with OpenAI, says analyst. What will happen to the revenue?

Technology giant Oracle has likely signed a major contract with OpenAI, the developer of artificial intelligence ChatGPT, suggested TD Cowen analyst Derrick Wood. He estimated that the partnership could drive Oracle's revenue growth to more than 50% in fiscal 2028. Oracle itself reported that one of the contracts it signed would generate more than $30 billion in annual revenue starting the same year. The company has tied itself to artificial intelligence, and that could be a driver of new growth, the main bullish on Wall Street predicted in June.

TD Cowen analyst Derrick Wood raised his target price on shares of Oracle from $250 to $275 on Thursday, July 3, and reiterated a buy recommendation (Buy rating) on the stock, reported Barron's. TD Cowen's new target suggests Oracle securities are up 16% from Thursday's closing level.

In his memo, Wood expressed confidence that Oracle had signed a big contract with OpenAI, though the companies have not officially confirmed this. Oracle CEO Safra Catz disclosed in a June 30 report filed with the U.S. Securities and Exchange Commission that the company had signed "several large cloud services contracts," one of which is expected to generate more than $30 billion a year starting in 2028. Then, on July 2, Bloomberg sources told Bloomberg reported that OpenAI had agreed to lease "a huge amount of computing power" from Oracle as part of its Stargate project. According to the agency's interlocutors, it involves about 4.5 gigawatts of capacity in data centers in the United States. That's an "unprecedented" amount of power that could power millions of U.S. homes, Bloomberg noted.

Oracle shares rose sharply priced after the Bloomberg news, rising 5% on Wednesday and another 3.2% on Thursday.

The information from Bloomberg's sources only "reinforces confidence" that the big deal that Safra Catz was talking about is specifically the OpenAI contract, and specifically within Stargate, which acts as OpenAI's investment platform, TD Cowen's Wood noted.

Such large deals are not new to Oracle, Barron's writes. According to TD Cowen, the company signed a 200 megawatt capacity contract with OpenAI in mid-2024 and an "even larger contract" in early 2025, which was the reason for the surge in new orders in the third quarter.

TD Cowen wasn't sure whether the contract with projected revenue of $30 billion reported by Oracle was a new contract or an extension of existing ones. Now, given the new data, "we're probably talking exclusively about new deals," Wood noted.

In this case, according to TD Cowen's calculations, Oracle's total revenue growth in fiscal 2028 will exceed 50%, according to TD Cowen. In addition, the revenue run rate under the OpenAI contract could exceed the initially announced $30 billion per year as new capacity comes online, Barron's said.

The reports also support another hypothesis of TD Cowen analysts: the OpenAI deal could include commitments totaling $150 billion, Barron's noted. That assumption is "quite reasonable, if not understated," according to Wood. The analyst believes Oracle's total revenue in 2029 could significantly exceed the company's forecast of $104 billion, noting the potential for further upside for the stock as it discloses its order book and future earnings.

In a June 11 call with investors, Oracle Chairman Larry Eliesson discussed that the company had received an order from an unnamed customer for all available cloud capacity. "Nothing like this has ever happened to us before. We had to reallocate resources quickly. We did everything we could to provide them with the capacity they needed," Ellison noted.

Patrick Walravens of Citizens JMP on Thursday reiterated an "above-market" valuation on the cloud computing vendor's stock and a $240 target price, writes Barron's. He noted that Oracle shares are up 39% since the start of the year - compared with gains of 6% for the S&P 500 and Russell 3000 indexes.

According to Walravens, Oracle securities represent "an attractive opportunity for capital growth" amid the expansion of its data center network. Citizens JMP has been tracking Oracle stock since 2002 and praises the company's strategy of "building a robust infrastructure using the best available technology."

In June, Guggenheim raised its target price on Oracle shares to the highest level on Wall Street. The company is on the cusp of a period of strong revenue and operating profit growth thanks to artificial intelligence, analyst John DiFucci said at the time.

According to FactSet, Oracle shares were rated by 41 analysts. Of these, 26 recommend to buy securities, the remaining 15 advise to hold. There is no advice to sell.

This article was AI-translated and verified by a human editor