A little-noticed provision in President Donald Trump’s “One Big Beautiful Bill Act” may deliver a stealthy windfall to select software companies.
According to analysts at Evercore ISI, changes in tax treatment for research and development and capital expenditures could unlock significant free cash flow for firms with heavy investment in innovation and infrastructure. With 100% bonus depreciation returning and R&D expenses now fully deductible, companies like Microsoft (MSFT) and Oracle (ORCL) stand to benefit.
Here is what you need to know about these two tech giants as they stand poised to benefit.
Tech Stock #1: Oracle (ORCL)
Oracle (ORCL) is making a tremendous comeback, and the stock is up nearly 50% in the past six months. Wall Street used to see Oracle as a legacy business, but it became a hot topic overnight due to Trump’s Project Stargate. Founder Larry Ellison went all in alongside major companies OpenAI and SoftBank (SFTBY) on $500 billion in AI-related spending through 2029.
Earlier this week, Oracle committed $3 billion to invest in European AI and cloud expansion. The stock is going vertical due to the AI narrative and its related long-term growth prospects.
According to Evercore analyst Kirk Materne, Oracle is one of the software companies that will receive “a stealth FCF tailwind” due to “favorable changes in tax treatment for R&D and capital expenditures.” He believes that Oracle’s free cash flow could rise by $3.3 billion or $1.12 per share.
Oracle reported $20.8 billion in operating cash flow in its most recent quarter, although it reported a $394 million free cash outflow due to its capex of $21.22 billion.
Evercore has a price target of $215 on ORCL, which is lower than its current trading price.
Tech Stock #2: Microsoft (MSFT)
Microsoft (MSFT) is the company that kickstarted the AI rally with its multibillion-dollar investment into OpenAI. This investment has paid off in spades, though indirectly. The recent AI surge has taken MSFT stock over $500, and the company looks to spend some $80 billion in cloud and AI infrastructure this year to further boost growth.
The company’s productivity software suite is even more attractive due to AI integration, and white collar businesses can’t get enough of it.
Trump’s One Big Beautiful Bill could supercharge the trajectory it is already on. According to Evercore, Microsoft is poised to receive an $11 billion increase in free cash flow, or $1.50 per share.
Evercore has a price target of $515 on MSFT, implying 2% upside potential from here.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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