Oracle has little room for error, Morgan Stanley says

Investing.com -- Oracle faces a major growth opportunity in its GPU-as-a-service business, but the scale of the buildout leaves the company with “little room for error,” according to Morgan Stanley.

The bank warned in a note to clients on Friday that rising capital needs, funding pressures and a tougher profit outlook are set to weigh on the company’s financial trajectory.

Analyst Keith Weiss said GPUaaS represents “a sizable revenue opportunity,” but a cross-team deep dive suggests the expansion “will push EPS below targets and drive materially higher funding needs.”

Morgan Stanley cut its price target for ORCL to $213 from $320 and reiterated its Equal-weight rating.

From an equity standpoint, the bank “struggle[s] to see a viable path to Oracle’s EPS targets,” noting that this challenge is already reflected in the share price, resulting in a “balanced risk/reward.”

But on the credit side, Morgan Stanley argued that risks remain underappreciated.

“We think key risks, including our new higher forecasts for funding needs and leverage, are not reflected in spreads, even after underperformance. We recommend buying CDS and selling benchmark bonds,” wrote Weiss.

Morgan Stanley’s updated model shows significantly lower profit expectations. The bank now forecasts FY28 and FY30 EPS of $8.51 and $10.02, “substantially below Oracle’s $10.65/$21.00 targets,” driven by slower GPU monetization, higher capex and rising financing costs.

Funding demands are set to surge. Morgan Stanley estimates $275 billion of cumulative cash capex from FY26 to FY28, well above consensus expectations of $189 billion.

It also projects gross adjusted debt above $400 billion and leverage exceeding 5x by FY28, underscoring what it calls “sizable funding needs… and intensifying ratings risk.”

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