Oracle (ORCL.US) released its Q2 earnings report on December 10, 2025, followed by a significant stock price decline. Financial analyst Envision Research issued a note cautioning investors against buying during the current pullback. The analyst had previously warned in September about overvaluation risks, citing Oracle's forward P/E of 48x and PEG ratio of 3.3—both substantially higher than AI peers like Nvidia (NVDA.US) and Meta Platforms (META.US). Concerns also included aggressive capital expenditures and negative free cash flow.
Post-Q2 earnings, the analyst highlights three key concerns that may drive further downside: 1. **Debt-Fueled Expansion**: Oracle's growth has been heavily reliant on increased debt, particularly through capital leases. Long-term debt has surged from ~$76B to nearly $100B, while total lease obligations tripled to over $20B in three years—primarily for data center infrastructure and Nvidia GPUs. These commitments could strain finances if AI demand underperforms expectations.
2. **Share Dilution**: After years of net buybacks (reducing shares outstanding from 4.3B to 2.8B), Oracle reversed course in FY2026, cutting repurchases to $506M while issuing $1.6B+ in new shares. Weighted average shares rose to 2.894B from 2.866B, signaling diminished financial flexibility.
3. **Persistent Overvaluation**: Despite the recent drop, Oracle's non-GAAP P/E of 25.9x remains 15% above its 5-year average (22.4x) and 10% higher than industry peers. Debt-adjusted metrics like EV/EBITDA (24x vs. historical 19.8x) suggest even greater overvaluation risks.
**Silver Linings**: - Cloud revenue grew 34% YoY in Q2. - Backlog (remaining performance obligations) rose 15% to $523B. - Commitments from hyperscalers like Meta and Nvidia mitigate execution risks.
**Conclusion**: The analyst advises against bottom-fishing given looming debt, dilution, and valuation headwinds. Potential investors should remain on the sidelines.
Comments