Oracle’s (ORCL) stock price may be catching a bid on Tuesday, but it has been obliterated in recent weeks.
AlphaSpace insight: With the nearly 4% decline in Oracle’s stock price on Monday, shares are now down more than 50% since June 2, according to Yahoo Finance AlphaSpace data. This brings the year-to-date slide in Oracle’s stock price to 36% versus a 9% gain for the S&P 500 (^GSPC).
AlphaSpace data shows Oracle’s stock is trading at its lowest forward price-to-earnings ratio in more than four years at 15.5 times. The current forward P/E ratio for the S&P 500 is about 20 times.
What’s behind the move: Investors are questioning whether Oracle’s AI-fueled growth expectations have become too aggressive.
While Oracle continues to sign large cloud infrastructure deals and benefit from demand for AI computing capacity, the market is concerned that the stock’s valuation already reflects years of strong growth.
There are also concerns that Oracle will need to spend heavily on data centers, networking equipment, and power infrastructure to meet customer demand, which could pressure margins and cash flow in the near term. Additionally, competition from Microsoft Azure (MSFT), Amazon (AMZN) Web Services, and Google (GOOG, GOOGL) Cloud remains intense, making it difficult to predict how much market share Oracle can ultimately capture.
Somewhat bizarrely, the Wall Street analyst community has stayed unapologetically bullish on Oracle with a steady drumbeat of reiterated Buy ratings. Yahoo Finance AlphaSpace data shows that about 86% of the sell-side analysts that cover Oracle have either a Strong Buy or Buy rating on the stock.
It’s unclear what this group is looking at, but surely it hasn’t been an Oracle stock chart over the past year.
“I’ll tell you there’s big execution risk,” BD8 Capital Partners CEO and chief investment officer Barbara Doran said on Yahoo Finance’s Opening Bid (see video above). “I mean, there’s no question they have a huge backlog, although there is big customer concentration risk there. But it’s really the debt issue, as we know. And S&P just downgraded to triple B minus. That is one notch above junk status. And so they’re really betting the house on this continued demand and the fact that there is plenty of room for more capacity to be added, but it’s going to take time.”
The bottom line: It’s hard to see how Oracle claws back a sizable chunk of these losses by year-end.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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