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Oracle (ORCL) stock is coming off a brutal month, with shares sliding more than 20% in November and slipping further on the first trading day in December. The top debate about Oracle has been its huge cloud deals with ChatGPT creator OpenAI — with analysts offering recent bullish and bearish views.
Oracle stock surged in September after the company revealed that its remaining performance obligations surged 359% to $455 billion during its August-ended quarter. The revenue backlog included a $300 billion cloud infrastructure deal with OpenAI, the Wall Street Journal reported a day later. By mid-October, investors reversed course and began focusing on concerns about how Oracle would fund the data-center buildout required to meet its AI demand.
Oracle stock has given back its entire September rally and now sits at its lowest levels since June.
Deutsche Bank Offers Bullish Oracle Stock View
Deutsche Bank analyst Brad Zelnick defended the beaten-down enterprise tech leader. He reiterated a buy call and price target of 375 in a note to investors late last week. He said even the bear case for Oracle looks bullish — with earnings and revenue growth looking strong outside of OpenAI's contribution.
"While we appreciate the financial and operational risks, our view is that these are much more than offset by the very real opportunity as OpenAI backlog represents solid ROI business, continues to advance as planned, and validates Oracle's leadership in deploying AI cloud infrastructure at scale," Zelnick wrote.
Oracle has turned to debt funding through a recent bond sale and has sharply increased its capital expenditures. That is particularly concerning to some investors since Oracle's cloud infrastructure relies heavily on OpenAI. With ChatGPT still not a profitable product, OpenAI has committed to more than $1 trillion in cloud spending with Microsoft, Oracle, Google and others.
For Oracle, Zelnick said the risk and reward for shares "skews strongly to the upside and, amidst the pullback, presents an attractive entry point for investors when looking at Oracle's business in totality."
Oracle Seen As 'Trapped In A Box'
On the other hand, CFRA analyst Angelo Zino last week downgraded Oracle stock to a neutral from buy. Oracle's debt exceeds $100 billion, and Zino projects negative free cash flow for the company through its next three fiscal years.
"We believe Oracle faces a precarious situation where aggressive customer acquisition raises credit downgrade concerns, while maintaining the status quo risks losing market share if OpenAI cannot meet commitments," Zino wrote.
Similarly, D.A. Davidson analyst Gil Luria argued that OpenAI's huge obligations create several risky scenarios for Oracle. Investors are closely watching the price of credit default swaps for Oracle, which protect against the company defaulting on its debt for the next five years.
"While we do not believe default is a likely outcome for Oracle, we believe that the increase in the cost to insure Oracle's debt is an indication the market realizes Oracle has borrowed too much for a customer that may or may not materialize," Luria said in a client note. He holds a neutral call on Oracle stock.
Oracle Stock Below 200-Day Line
Oracle stock fell a fraction to close near 201.30 on the stock market Monday. Shares remain below Oracle stock's 200-day moving average.
The company will have a chance to rebut Wall Street's concerns later this month. Oracle is expected to publish fiscal second-quarter results on Dec. 15. The firm has not yet provided an official date.
Meanwhile, Oracle stock holds an IBD Composite Rating of 60 out of 99, according to IBD Stock Checkup. IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better.
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