Waiting For Stargate Liftoff: Oracle Eyes Megaproject To Restart Stock Rally

Oracle (ORCL) offered an upbeat spin on its recent quarter: AI is powering strong demand for its cloud business. And that's even before any contributions from Stargate, the massive project that some analysts expect to give Oracle stock a lift.

It was a little over six weeks ago that Oracle Chairman Larry Ellison appeared at the White House along with President Donald Trump, OpenAI leader Sam Altman and SoftBank Chief Executive Masayoshi Son to tout Stargate. The massive infrastructure project could spend $500 billion on data centers over the next five years that will focus on powering AI systems, with Nvidia (NVDA) among other partners.

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On Monday's earnings call, Ellison said Wall Street can expect the first contract from the Stargate effort "fairly soon." He also touted Stargate as the "biggest AI training project out there."

Still, industry experts are puzzling over the details as the buzzy project remains in its early stages.

"The 'media-to-revenue' ratio on Stargate feels high to me right now given that Oracle does not yet have a contract," International Data Corp. President Crawford Del Prete told Investor's Business Daily. "I think that will change as contracts get awarded, but it's a lot of funds to count on."

And, in the meantime, a Q3 earnings miss added to a recent slump for Oracle stock.

Oracle Stock: Waiting For First Contract

Oracle stock rallied 13% over a two-day period in late January when the project was revealed. The tech giant was once considered left behind by the cloud era. Stargate showed how Oracle had won a seat at the table in the race to offer AI services.

But a slumping stock market and concerns about AI spending brought on by DeepSeek have caused Oracle to slump for nearly two months.

An earnings and sales miss with Oracle's February-quarter didn't help, pushing Oracle stock lower. Oracle has a backlog of AI-related cloud work. But it has posted underwhelming recent results as it races to meet that demand.

Stargate is still early in its buildout. Construction is underway in Abilene, Texas on the first data center that is part of the project.

The data center will house 64,000 GPUs from Nvidia (NVDA), according to a Bloomberg report last week. Oracle will be in charge of operating the supercomputer at the data center but OpenAI is contributing to the design, Bloomberg reported.

Meanwhile, Trump ally Elon Musk, a known rival of OpenAI's Altman, has cast doubt on the project's finances.

SoftBank and OpenAI are contributing $19 billion each, according to a report by The Information in January. Oracle and MGX, an Abu Dhabi-based fund, would contribute a combined $7 billion. Altman also told colleagues that Stargate will operate similar to a venture fund, according to The Information.

Monness Crespi Hardt analyst Brian White upgraded Oracle stock to neutral from a sell call in a client note last week. But he was skeptical about Stargate.

"In the spirit of shortcomings that have come to pass throughout American history with the suffix 'gate' attached, combined with Elon Musk's view of the project, we believe Stargate's moniker may be more apropos than the market fully appreciates," White wrote.

Oracle Cloud Grows

Oracle envisions the Stargate project boosting AI demand for its Oracle Cloud Infrastructure business. OCI rents computing power — including access to graphics processing units necessary for training AI algorithms — to enterprises. Oracle is a smaller player in a cloud field dominated by hyperscalers Amazon.com (AMZN), Microsoft (MSFT) and Alphabet's (GOOGL) Google.

Oracle Chief Executive Safra Catz said the company signed sales contracts worth more than $48 billion in its third quarter alone. Its remaining performance obligations — a measure of cloud contracts not yet delivered to customers — grew 63% year-over-year to $130 billion.

Oracle projected sales growth to accelerate from an estimated 8% for its May-ending 2025 fiscal year to 15% in fiscal 2026 and 20% in fiscal 2027. Those estimates don't include Stargate revenue.

Catz added in Oracle's press release that "we expect RPO to continue to grow rapidly — as we look forward to signing our first Stargate contract — yet another big opportunity for Oracle to expand both its AI training and AI inferencing businesses in the near future."

Oracle Stock: How Will Stargate Revenue Work?

Another question is how the revenue from Stargate will be recognized. Oracle is both a reported technology partner and financial backer of the initiative.

"We expect Oracle is likely to receive a revenue share from the Stargate project," Morgan Stanley analyst Keith Weiss wrote in a February client note. "What we do not know is how the Stargate entity is structured from an accounting perspective, what Oracle's economics are related to Stargate, and what further impacts the potential asset transfer and investment might have."

Catz was asked by analysts on Monday how Stargate would "flow through" to Oracle's financials.

"I'll be explaining it to you once it's fully laid out, but it's not going to make your work harder," Catz said. "We're going to be very, very clear on (it) as the contracts come through us, it won't be as much of a change as you think. It's just going to be even larger numbers."

Can Oracle Stock Break Out Of Funk?

On the other hand, investors are growing more cautious about AI spending in general. The sell-off sparked by the DeepSeek news underlined this. With its earnings report letdown, Barclays analyst Raimo Lenschow wrote Tuesday he expects Oracle stock will remain "range​-​bound" for at least a little while.

Oracle stock's Relative Strength rating has slumped to 76 out of 99, compared to 89 three weeks ago. Shares also broke significantly below Oracle's 200-day moving average earlier this month, according to IBD MarketSurge.

The performance is a letdown after Oracle's 60% rally in 2024 marked its best year since 1999. For some of its quarterly reports last year, investors overlooked near-term results to focus on the company's backlog and cloud momentum. That trend appears to have passed. So it is all the more important that Oracle deliver on the Stargate and AI hype.

"Bottom line, Oracle has work to do in convincing investors of the long-term value of their building RPO balance," Morgan Stanley's Weiss wrote in a note Tuesday.

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