Oracle (NASDAQ:ORCL | ORCL Price Prediction) shareholders can’t seem to catch a break with the stock crashing close to 43% off its year-to-date peak of $248 and change. If you chased a name on a rebound, you took a huge hit to the chin, and with shares quickly approaching the depths not seen since April, now that all of the Spring gains have been wiped out, questions linger as to what the next major move for the software titan and AI infrastructure fast-mover will be.
Indeed, the company is not afraid to take a big swing. With the recent mass layoff and other moves to shore up extra cash to spend on its AI data center buildout, it feels like the company is more than willing to absolutely floor it, even if it means taking the risk profile to heights that most investors wouldn’t be comfortable with.
There’s a lot of negative cash flow and a boatload of debt, to say the least. And with the latest 21,000 job cut, Oracle needs its AI infrastructure bets to pay off sooner rather than later as it does its best to reallocate resources to serve the massive backlog that’s been built up. If you hate AI-related CapEx, Oracle is probably a name that would give you nightmares.
Like it or not, though, the company can’t move fast enough to meet demand for AI compute. And with a swelling backlog, it feels like the firm isn’t building based on hope; the contract has already been inked, and Oracle just needs to get things up and running.
OpenAI bad news hits Oracle — again!
With shares most recently nosediving close to 9% in a single week, its top client, OpenAI, is once again a source of anxiety for investors. With Sam Altman’s AI firm poised to delay its IPO, questions linger as to whether OpenAI’s financial situation is in a tougher spot than expected. Any way you look at it, it should be no mystery that OpenAI is willing to swing for the fences and spend the big money to get back to the number-one spot in the AI race.
You’d think that the concentration risk in a massive cash bleeder would already have been more than baked into the share price by now. In any case, I think the latest drawdown is more of an overreaction than anything to head to the exits over. For Oracle, it just needs to do everything in its power to deliver compute to its customers. Everything else will follow.
While it feels like Oracle shares are hitting rock bottom again, there’s no telling how low the shares could go if the firm takes longer than expected to deliver or if the firm needs to raise even more capital to finance its buildout. It’s this haze of uncertainty that might make Oracle shares too scary to own.
Trading at a discount to other AI data center plays
Despite the risk of more cuts, dilution and all the sort, I think it makes sense to step in as a contrarian right here while shares are trading at 18.1 times forward price-to-earnings (P/E). With William Blair recently adding Oracle to its conviction list, I think the deep-value case is clear for those who can handle the wild moves.
William Blair sees the firm as “trading at a discount to many AI infrastructure peers, despite improving fundamentals.” I couldn’t have said it better myself. In my view, I think Oracle should go for a premium, given the brilliant managers running the show and the explosive OCI growth that has a higher chance of hitting the bottom line than not.
At the very least, investors won’t be asking why Oracle didn’t move with more aggression once the backlog converts and it becomes more apparent that the AI buildout is far more lucrative than expected. Even in the unlikely scenario where OpenAI isn’t good for the money, my guess is it won’t take too long for Oracle to find another buyer of its AI compute.
Even the hyperscalers seem underserved, with a hunger for AI compute to bridge the gap into the agentic era. In my view, all the Oracle negativity makes very little sense unless, of course, you think AI is in a bubble and compute demand will implode.
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