Here is the 44th edition of “Stock of the Week”. You can find all the previous analyses and my articles on my main page (for an easier search, use a computer, mobile version is harder to navigate).
Here is the link to the previous “Stocks of the Week” as well
After a period of exceptional performance, the stock is now down more than 50% from its ATH reached just 4 months ago. Is this a warning sign for the tech sector, or simply a market overreaction that is now cooling off? Let’s find out.
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One Pager
The stock at a glance
Recent news
Oracle announced a massive $300B, 5-year cloud computing contract with OpenAI to provide extensive AI infrastructure capacity
Oracle reported strong growth in remaining performance obligations, surging significantly due to major AI-related bookings, primarily tied to the OpenAI partnership
Cloud infrastructure revenue continued to expand rapidly, driven by demand for AI workloads
Negotiations with Blue Owl Capital for equity funding of a $10B, 1-gigawatt data center project in Michigan intended for OpenAI stalled and broke down over unfavorable lease terms
Oracle stated that the Michigan data center project remains on schedule with a different equity partner selected instead of Blue Owl
Concerns emerged among investors regarding Oracle’s rising debt levels and heavy spending on AI data center buildouts to fulfill large contracts
Last earnings report
The cloud segment is clearly driving the entire company, posting 34% growth, while the historical software segment declined by 3% YoY. Infrastructure as a Service (IaaS) performed even more strongly, with revenue up 68%.
EPS rose sharply, increasing 91% YoY. Remaining performance obligations (RPO), effectively the company’s order backlog, surged 438% compared with last year, still benefiting from the major OpenAI contract.
Analysts’ recommendations
Dec, 15. Wolfe Research. Buy. $275 —> $250
Dec, 15. Citic. $243 —> $200
Dec, 12. HSBC. Buy. $382 —> $364
Dec, 11. Bank of America. Hold. $320 —> $220
Dec, 11. Wolfe Research. Buy. $400 —> $275
Dec, 11. TD Cowen. Buy. $400 —> $350
My analysis
In my previous articles, I highlighted the risks behind Oracle’s parabolic rise. While such a rally can be justified when everything goes right, 2 major issues stood out: execution risk and dependency on a single large contract
On the execution side, building data centers is capital-intensive and requires substantial funding. Oracle already carries significant debt, making the recent Blue Owl news a negative signal regarding its ability to finance expansion smoothly. In addition, the company has less financial and technical firepower than some of its larger competitors (Alphabet, Microsoft and Amazon obvisouly)
On the dependency side, the OpenAI contract raises several questions. What happens if the order is reduced or canceled? What if AI demand continues to grow, but at a slower pace than expected? And what if competition gains market share, limiting Oracle’s long-term upside
These issues reflect broader characteristics of the current market, where data center expansion and projected growth depend heavily on execution capabilities and the ability to monetize AI investments. This inherently increases risk. While AI is undoubtedly a technological revolution, key uncertainties remain: the pace of adoption, the sustainability of monetization, and whether more efficient or simpler competitive models can keep costs low, making it harder to amortize massive capital investments
All of this leads to one conclusion: caution is warranted. Waiting for a more attractive valuation may offer a better risk–reward profile before investing in this type of stock
Technical analysis
I have defined 3 buying zones that I find interesting for long-term investments during pullbacks. While these zones may not be reached, I am prepared for a market (or stock) consolidation to seize long-term opportunities. For me, this approach offers a better risk/reward ratio.
Of course, this is just my opinion, and I am sharing it with you, but each investor should decide on their own investment style. With that said, here are my three buying zones for Oracle.
Buying zone 1. $130
Buying zone 2. $100
Buying zone 3. $62
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Used source: Marketscreener.com. Affiliate link just here
Oracle at $94.44 with 9.5% dividend
https://heraldofthehudson.substack.com/p/oracle-at-9444-with-95-dividend