Oracle shares remain under heavy selling pressure this week, extending a slide that began after the stock hit an all-time high of $345 in September last year. The shares have now lost roughly 60% of their value, and while the valuation has become more compelling, a troubling technical pattern and mounting financial obligations are giving investors pause.
AI darling turns into the market's most disliked tech name
Once a favorite in the artificial intelligence trade, Oracle has become one of the most heavily scrutinized companies in the sector. Its latest quarterly results showed revenue growth continuing at a robust pace, with analysts expecting momentum to persist given its expanding role in AI infrastructure. Revenue rose 21% year over year in the fiscal fourth quarter to $19.2 billion, while its cloud infrastructure business surged 93% to $5.8 billion. The company's Remaining Performance Obligations (RPO) jumped by $85 billion in the quarter to $638 billion, one of the largest backlogs in the industry.
Oracle's guidance also points to sustained expansion. The company expects first-quarter revenue growth of 27% to 29%, and full-year revenue of approximately $90 billion, above the $89 billion consensus. Management projects revenue of $130 billion in the following fiscal year.
Heavy spending and debt raise red flags
The primary driver of the selloff is not growth but the cost of achieving it. Oracle plans to spend $48 billion on capital expenditures this year and $70 billion next year, requiring substantial external financing. The company intends to raise $40 billion through a combination of debt and equity issuance. Total debt has climbed to $129 billion, including $7.2 billion in short-term obligations. Interest expenses reached $1.4 billion in the last quarter alone. While its bonds are not yet rated junk, S&P Global downgraded Oracle to BBB in June, and credit spreads have widened.
Investor sentiment has also been dampened by broader concerns about a potential AI bubble, a warning echoed by investor Michael Burry. Additionally, Oracle's significant exposure to OpenAI, whose revenue growth has slowed, adds to the unease.
Valuation looks attractive, but risks loom
On the positive side, Oracle's forward price-to-earnings ratio has fallen to 18, below the sector median of 22, suggesting the stock may be undervalued. Several analysts see upside: UBS has a price target of $245, Wedbush $240, Bernstein $325, Barclays $250, and Moffett Nathanson $325.
Technical picture: a risky pattern emerges
The weekly chart reveals a concerning development. Oracle's stock has dropped from its September peak to around $142, and it remains below the 50-week exponential moving average. More notably, a giant head-and-shoulders pattern has formed, with the neckline at $118.90. This classic bearish formation often signals further downside. If the stock breaks below that support, the next major level could be significantly lower.
Investors are weighing the cheap valuation against the heavy spending, rising debt, and a chart that suggests more pain may be ahead. The coming quarters will be critical in determining whether Oracle can execute its ambitious AI strategy without further eroding shareholder value.
This article is for informational purposes only and does not constitute financial advice.
