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Investing.com -- Piper Sandler downgraded Oracle (NYSE:ORCL) to Neutral from Overweight in a note Wednesday, citing concerns over margin pressure and rising capital expenditures as the company ramps up investment in its cloud infrastructure business.
The firm also cut its price target on Oracle shares to $130 from $190.
Piper Sandler analysts acknowledged Oracle's recent momentum in artificial intelligence workloads, particularly through its Oracle Cloud Infrastructure (OCI) business.
“OCI has successfully carved out a differentiated role as the platform of choice for large-scale GPU clusters with an increasing number of AI customers including Meta (NASDAQ:META), Uber (NYSE:UBER), xAI, Luma AI, Suno, and Baseten,” the analysts wrote.
However, they cautioned that with rapid growth comes rising costs. “With great backlog comes great responsibility,” the note said, pointing to a $48 billion quarter-over-quarter increase in backlog that lifted total remaining performance obligations to $130 billion, up more than 60% from a year ago.
To meet demand, Oracle expanded its customer-facing data center regions from 69 to 101 over the past year, notes Piper Sandler.
The firm warned that fiscal year 2026, which begins in June, is shaping up to be “a year of growth and elevated investments.”
The firm estimates Oracle's capital expenditures could rise by more than 50% year over year to $24 billion, potentially consuming “nearly 100% of potential operating cash flows.”
While maintaining a positive long-term view, Piper Sandler said it is stepping to the sidelines for now.
“We remain bullish on the next 3–5 year opportunity for ORCL but are moving to the sidelines ahead of F2026 that we see as a year of investment,” the analysts wrote.
The downgrade also reflects a shift in valuation methodology, with Piper now focusing on operating cash flow rather than free cash flow for capex-heavy models like Oracle.
