Executive Summary

• We are upgrading our recommendation on Oracle from Market perform to Outperform; our upgrade is driven by favorable developments and attractive spreads, although binary risk tied to OpenAI remains.

• We raised our revenue forecasts for FY2027 and FY2028 while maintaining our operating margin estimates; lower gross margin estimates were roughly offset by lower opex assumptions.

• We raised our capex estimates for Oracle to $67.5 bn in FY2027 (from $60 bn) and $85 bn in FY2028 (from $80 bn); management has not yet provided capex guidance for those years and its “new model” could reduce cash capex needs.

• We expect $10 bn net issuance in each of FY2027 and FY2028; we think gross issuance could be in the $15-20 bn range annually to refinance bond maturities, term loans, and/or commercial paper borrowings.

• We estimate Oracle’s gross lease-adjusted leverage will decline from ~4.2x at FY2026 to ~3.8x at FY2027 and ~3.6x at FY2028; we expect EBITDA growth to more than offset higher debt levels.

• We are higher than consensus on revenue, lower on gross margin, lower on opex, higher on EBITDA, and higher on capex; we continue to assume substantially greater operating leverage than the Street.