Oracle Outlines a Clearer Funding Path and Cash Flow Turnaround Timeline

Written by: Rita

Oracle provided clearer answers at its Analyst Day regarding how much investment AI expansion requires, how to raise funds, and when cash flow improvements will be seen. Morgan Stanley acknowledged this progress in its updated report on October 29, 2026, maintaining its “Equal Weight” rating. Improved funding pathways have shifted market discussions further toward execution and implementation.

Morgan Stanley believes that future stock performance depends on Oracle's ability to deliver capacity as planned and maintain profit margins during the peak expansion phase. Management has provided a more comprehensive financial framework, but executing this framework requires alignment across data centers, equipment, customer contracts, and operational efficiency.

Oracle estimates that the total capital expenditure required for the remaining approximately 6 gigawatts of construction, spanning from the second quarter of fiscal year 2027 to the fourth quarter of fiscal year 2028, is around $220 billion. Fiscal years 2027 and 2028 represent the peak investment period. Morgan Stanley believes that market concerns regarding capital requirements have been more specifically addressed during this event.

Management plans to reduce upfront cash requirements by combining supplier financing, customer prepayments, and customer-provided hardware arrangements. Under the customer-provided hardware model, customers supply the relevant equipment, while Oracle handles the supporting infrastructure and services. According to management’s framework, these approaches can reduce upfront cash requirements for corresponding construction by approximately half.

The company expects to raise an additional $20 billion in funding, with $10 billion each in equity and debt. Management has positioned this as the final round of new financing for this investment cycle and anticipates that total debt will remain stable thereafter. By fiscal year 2029, the target net debt-to-adjusted EBITDA ratio is below 3.5x.

Morgan Stanley is focused on how the capital structure affects the pace of expansion. Equipment and data centers require upfront investment, with contract revenues released afterward. Involving suppliers and customers in early-stage funding arrangements can alleviate cash flow pressure during the concentrated construction phase and help the company navigate the investment peak.

Using the 1-gigawatt project as an example, the management-updated contract model corresponds to approximately $80 billion in remaining performance obligations, with an average contract term of five years and capital expenditures of approximately $37 billion. After the project ramps up, annualized revenue is approximately $16 billion, with a gross margin of about 35% and an operating margin of approximately 34%. Morgan Stanley uses this analysis to evaluate the unit economics of compute services.

In this model, the free cash flow conversion rate after project maturity is 100%, with an approximate return on investment of 28%. Management states that large AI contracts are primarily structured on a cost-plus basis. Changes in equipment costs affect revenue and capital investment, but the contract design helps maintain profit margins and returns.

The financing method significantly alters initial capital requirements. The company demonstrates that with 70% supplier financing, the initial two-year capital expenditure for a 1-gigawatt project can be reduced from approximately $37 billion to about $18 billion, while maintaining a gross margin of around 35% and substantially easing upfront financial pressure.

With a customer-provided hardware model, the project's capital expenditure is reduced to approximately $6 billion, corresponding to approximately $11 billion in revenue and a gross margin above 35%. Morgan Stanley notes that different configurations impact revenue per unit of capacity, leverage, and cash flow; therefore, the company’s financing strategy must be understood in conjunction with its business model.

Oracle expects free cash flow to turn positive in the second half of fiscal year 2028 and exceed $30 billion in fiscal year 2029. Morgan Stanley noted that this is significantly better than the market consensus of approximately -$1 billion for that year. For investors, this provides a clearer timeline for when ongoing investments will begin generating cash flow returns.

This path corresponds to rapid capacity growth. Oracle had approximately 3 gigawatts of capacity by the end of fiscal year 2026 and aims to reach approximately 10 gigawatts by the end of fiscal year 2028. As of the first quarter of fiscal year 2027, 850 megawatts have already been delivered, with significant additional construction still required.

Morgan Stanley views production capacity execution as a key constraint on the stock price. Four out of five major sites are not expected to begin providing initial services until the calendar year 2027. The timing of construction completion will directly impact the pace of revenue growth and cash flow positivity.

Management also outlined measures to address delays. The guidance accounts for potential delays of up to several quarters at large sites, with construction costs incurred gradually as data centers are completed. Racks, network equipment, and cooling systems can be reallocated across sites, helping to mitigate the impact of delays on individual projects.

For fiscal year 2030, Oracle has set a target floor of over $225 billion in revenue and over $21 in adjusted EPS, and has added a goal of more than 40% adjusted operating margin. Management also indicated that profit margins during the peak expansion phase will approach this level. Growth scale and profitability are now aligned within a single long-term framework.

Morgan Stanley emphasized that achieving this profit target requires clear operating leverage on the expense side. As the proportion of infrastructure business increases, the profit structure also changes. Growth in applications and database businesses must be aligned with expense discipline to support the group's overall returns.

There are also positive signals of AI adoption in core applications. Customers of the Fusion enterprise application suite initiated over 150 million embedded AI calls in the first quarter of fiscal year 2027, with the number of active intelligent agents increasing from 1,000 in May to 3,500. Management aims to reduce implementation efforts and accelerate enterprise cloud migration through new configuration capabilities.

Morgan Stanley maintains a $210 price target, recognizing the opportunities presented by AI computing services, while also acknowledging execution risks related to construction, financing, and cost management. Oracle has already established a clearer framework for funding and returns; future operational results will determine the market’s confidence in this path.

This analyst day shifted the discussion from ambitious revenue targets to project investments, financing arrangements, and cash recovery. Following Morgan Stanley’s assessment, Oracle’s vision and funding pathway have now been realized; the remaining uncertainty lies entirely in production delivery. Until the market clearly sees racks coming online on schedule and profit margins holding up against expansion pressures, it will be difficult to justify a higher valuation premium—this remains the key anchor for future monitoring.

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Morgan Stanley, October 29, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution, not the views of Chaoxiang Research, nor do they constitute any investment advice.

The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.