TLDR
- Oracle stock crashed 37% from its September high of $346 to current levels near $217 over three months
- Concerns about mounting debt and heavy AI infrastructure spending without adequate cash flow generation drove the selloff
- Q2 earnings release scheduled for December 10 with Wall Street projecting $1.64 EPS and $16.19 billion in revenue
- Forward P/E ratio compressed from over 40x to 27x, creating a valuation gap versus Microsoft at 32x
- Mizuho analyst calls the decline excessive, maintaining a $400 price target citing strong AI demand fundamentals
Oracle stock has been hammered. Shares reached $346 in September. They now trade around $217.
That represents a 37% decline in three months. The company shed nearly 40% of its market capitalization during this period.
The shift in sentiment has been dramatic. September’s narrative focused on Oracle’s aggressive AI expansion and nuclear-powered data center ambitions. Today’s story revolves around balance sheet concerns.
Investors are questioning whether Oracle can manage its debt load. The company is borrowing to build infrastructure for major AI customers including xAI and Cohere. These projects haven’t produced strong free cash flow yet.
The market is demanding proof of returns. Oracle positioned itself as an infrastructure provider for the AI boom. But the financial strain of that strategy has become the dominant concern.
How Cheap Has Oracle Become?
The valuation compression tells the story. Oracle’s forward P/E ratio fell from above 40x to 27x. Microsoft trades at 32x for comparison.
Oracle now trades at a discount to cloud hyperscalers. Some view this as appropriate given higher leverage and weaker cash conversion. Others see mispricing.
At 27x earnings, Oracle resembles a mature software business. Yet Oracle Cloud Infrastructure is projected to grow more than 70% this fiscal year. The disconnect between valuation and growth could present opportunity if execution improves.
The nuclear data center story has faded. Regulatory hurdles and FERC decisions on power plant colocation dampened expectations. The market removed any speculative premium tied to that initiative.
The Critical Earnings Report
Oracle delivers Q2 results on Wednesday. Analysts expect $1.64 per share in adjusted earnings, representing 11.6% growth year-over-year. Revenue forecasts point to $16.19 billion, up 15%.
The focus will be on backlog conversion rates. Oracle carries a $400 billion backlog in remaining performance obligations. That number looks impressive but doesn’t address immediate financial obligations.
Management needs to demonstrate that capital expenditures are translating to recognized revenue quickly. A growing backlog with stagnant revenue would signal execution problems or capacity constraints.
Mizuho analyst Siti Panigrahi sees the selloff as overdone. He maintains an Outperform rating and $400 price target. Panigrahi points out Oracle dropped 34% while the broader software ETF declined just 2%.
The analyst emphasizes that AI capacity demand continues to outstrip supply. Oracle converts new GPU capacity to billable revenue within weeks. This quick monetization challenges the cash burn narrative.
Panigrahi anticipates Oracle will detail financing strategies for data center expansion. Vendor financing and capital lease arrangements can reduce upfront cash requirements while tying costs to revenue generation.
Oracle gained competitive advantage through early GPU stockpiling. The company secured Nvidia chips when competitors faced shortages. Its RDMA networking creates customer stickiness once AI models are trained on the platform.
Wall Street maintains a Moderate Buy rating overall. The consensus includes 25 Buy recommendations, 11 Hold ratings, and one Sell. The average analyst price target sits at $350.27, implying 61% upside potential.
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