Oracle's shares have fallen sharply this year, lagging behind major tech peers like Microsoft, Meta, and Cisco. The stock closed Wednesday at $117.90, a 52% decline from its 2025 peak, and its market value has contracted from over $713 billion to roughly $356 billion. While the valuation metrics suggest the stock is cheap, several headwinds could push it lower.
Growth Remains, but Risks Mount
Oracle's latest earnings showed continued expansion, with revenue climbing 30% year-over-year to $19.3 billion, making it one of the fastest-growing large-cap tech firms. The company has benefited from strong demand, particularly from OpenAI, whose multi-year deal is valued at over $300 billion. Oracle also reported that remaining performance obligations (RPO) surged by $209 billion to exceed $664 billion.
Despite these positives, Oracle faces significant challenges that explain the stock's slide. A primary concern is its reliance on OpenAI, which, according to The Wall Street Journal, saw its losses widen in the third quarter even as revenue grew. OpenAI recently missed its $30 billion revenue target, raising doubts about its ability to honor the massive contract.
Other issues include the termination of a $7 billion deal with Tencent due to political pressure, and Microsoft's gradual reduction of its partnership with Oracle. Additionally, Oracle's Project Jupiter data center in New Mexico has encountered power-related problems, prompting a force majeure notice that could delay completion.
Debt and Financing Pressures
To fund its aggressive data center expansion, Oracle has been raising capital. The company recently announced a $20 billion raise through debt and equity, and its total debt has climbed to over $174 billion. Rising bond yields reflect growing investor concern about its financial leverage.
Valuation Looks Attractive, but Risks Are Priced In
On the surface, Oracle appears undervalued. Its forward price-to-earnings ratio stands at 14.4, well below the technology sector median of 19.8. The forward PEG ratio of 0.48 is also lower than the sector's 1.09. A discounted cash flow analysis by Simply Wall St estimates fair value at $185, significantly above the current price.
However, these low multiples suggest the market is already pricing in substantial risk. Analysts remain optimistic, with an average price target of $249, implying a 111% upside. Firms like KeyCorp, BTIG, and HC Wainwright have bullish ratings.
Technical Outlook Points Lower
The daily chart shows Oracle in a clear downtrend, having recently hit a low of $114.46, its lowest since July. The stock has formed an inverted cup-and-handle pattern, a bearish continuation signal, and remains below its 50-day moving average. While support at $114 could trigger a bounce, the overall technical picture suggests the downtrend may persist.
Given the combination of fundamental risks and bearish technicals, Oracle's stock could indeed drop to $100 or below, despite its apparent bargain valuation.
This article is for informational purposes only and does not constitute financial advice.
