Oracle Cratered Again. Shares Might Be a Triple If These Analysts Are Right.

By Joey Frenette Published Jul 15, 9:35AM EDT

Quick Read

Oracle shares have crashed 61% from peak; at 16.2x forward P/E, bulls see the battered stock as ripe for a sharp V-shaped bounce.
Jefferies and Guggenheim both hold $400 price targets, implying 215% upside as Oracle's AI supercluster pipeline and revenue backlog conversions accelerate.
OpenAI's deteriorating finances and delayed IPO threaten Oracle's largest AI revenue stream, adding uncertainty to an already heavily leveraged balance sheet.
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Oracle Cratered Again. Shares Might Be a Triple If These Analysts Are Right. — © Kimberly White / Getty Images News via Getty Images

It’s hard to believe, but shares of Oracle (NASDAQ:ORCL | ORCL Price Prediction) have now lost more than 61% of their value from the peak hit last year when the firm pulled the curtain on a stunner of a quarterly earnings report. Since then, the company has only gotten even more aggressive with its push into the AI data center. And as shares look to implode to new multi-year depths, many investors might be wondering if the company has risked too much to get a better seat in this ongoing AI revolution.

The AI buildout continues to move at full steam, but Oracle has seemed to take it to the next level not only by cutting its workforce, but by taking on significant sums of debt to build the AI compute needed to serve frontier AI innovators, including OpenAI, which has become the company’s sore spot in recent months amid growing concern about the financial situation over at the frontier AI lab.

With OpenAI’s IPO delayed, Apple (NASDAQ:AAPL) takes OpenAI and Sam Altman to court over the alleged theft of secrets; it feels like being an OpenAI-adjacent company is the wrong place to be.

Of course, a few stumbles and delays might give off the impression that OpenAI might not be up for the money. And for Oracle, that’s a scary thought, especially when you consider the amount of leverage taken on to get infrastructure to where it needs to be.

The risks are already well-known and well-baked into shares

Indeed, if it’s not the concerning headlines surrounding Oracle’s largest AI customer, the massive CapEx, the considerable dilution from the latest funding plan, or fears of a brain drain following the latest 21,000 mass layoff, perhaps it’s fears of the rapid obsolescence of hardware.

Unlike the hyperscalers, which are swimming in cash, Oracle is putting itself at great risk to hop aboard the AI compute train. And it’s unclear if it’ll reach the right destination before spending gets out of hand and bills come due.

For shareholders, it feels like Oracle is rolling the dice, rather than making a shrewd investment. At the same time, I think the shares have become way oversold, primarily over the same old headlines being regurgitated non-stop. Is a boat-load of debt scary?

No doubt. Add AI uncertainties into the equation, and the uncertainty surrounding OpenAI’s ability to pay as its financial situation moves between a rock and a hard place, and it’s clear that Oracle isn’t going to be the right AI bet for everyone.

With shares going for 16.2 times forward price-to-earnings (P/E), though, the stock is starting to get too cheap for its own good. And as RPOs convert, Oracle might be a timelier V-shaped bounce candidate that could absolutely punish those who choose to sell at these depths.

Oracle’s $400 price targets aren’t getting slashed anytime soon

In any case, Jefferies and other sell-side analysts are unmoved, staying in the bull camp, with a price target ($400 per share) that could entail 215% worth of gains from current levels. It’s not too often you see an implied triple (or a more than triple) when it comes to analyst targets. But that’s what Oracle has become after its latest vicious meltdown.

For Jefferies, it’s more about the AI data center pipeline and the coming conversion of the revenue backlog. As for Guggenheim, which shares that $400 target, it’s about having the “better” architecture. I couldn’t agree more. When it comes to renting out AI superclusters for training purposes, only the best will do. And Oracle has pretty much become the gold standard.

Of course, Oracle won’t turn overnight, but for those willing to hang on for the ride in the coming five years, I do think that the stock will find its way higher again. Perhaps the rally could be more furious than the descent, as Guggenheimer’s John DiFucci looks forward to that “cash flow waterfall” coming for Oracle.

I couldn’t agree more. Oracle is a name that demands patience. And while there is execution risk, I do think that the company continues to find itself on the right side of this revolution. That could make it far more resilient than markets give it credit for, even if the financials themselves aren’t in the prettiest spot.

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About the Author Joey Frenette →

Joey is a 24/7 Wall St. contributor and seasoned investment writer whose work can also be found in publications such as The Motley Fool and TipRanks. Holding a B.A.Sc in Computer Engineering from the University of British Columbia (UBC), Joey has leveraged his technical background to provide insightful stock analyses to readers.

Joey's investment philosophy is heavily influenced by Warren Buffett's value investing principles. As a dedicated Buffett disciple, Joey is committed to unearthing value in the tech sector and beyond.