Mackenzie Tatananni
Oracle stock fell Friday following a downgrade by a new bear who writes that the "hype" surrounding the company wouldn't be enough to offset intense competition.
Shares of Oracle fell 1% after Monness, Crespi, Hardt & Co. analyst Brian White downgraded the software firm to Sell from Neutral and set a price target of $130.
Oracle stock was down 0.7% to $167.70 in Friday trading, while the S&P 500 was about flat.
White acknowledged the stock's strong performance over the past year, crediting it to the generative artificial intelligence boom. The valuation has soared, as well. "Oracle's current P/E multiple is approximately double its long-term, historical average," he noted.
However, the analyst argued that Oracle delivered "surprisingly uninspiring results" in the second quarter of fiscal 2025 ended Nov. 30.
Oracle reported earnings per share of $1.47 for the quarter on revenue of $14.06 billion, missing Wall Street's expectation for earnings per share of $1.48 on revenue of $14.1 billion, according to FactSet.
White also nodded to Oracle's "excessive" capital spending, which is expected to double in fiscal 2025. Capex spending in the November quarter was $4 billion, surpassing the $3.5 billion projected by analysts and putting the company's free cash flow in the negative.
Oracle's plans to continue pouring money into capital spending, White argued, were "unsustainable," especially against the backdrop of a highly competitive cloud computing landscape.
"In our view, the public cloud landscape is daunting, a field dominated by three, large, innovative, deep-pocketed Big Tech companies," White wrote, a nod to Amazon Web Services, Microsoft Azure, and Google Cloud Platform.
While Oracle "enjoyed early success in attracting customers in pursuit of gen AI riches," White questioned the "long-term sustainability and attractiveness" of its business model.
"Oracle represents a high-quality company with the opportunity to participate in a cloud transformation and benefit from the gen AI trend; however, valuation is stretched, competition fierce, software in transition, and the macro environment fragile," White wrote.
Oracle didn't immediately respond to a request for comment.
Amazon.com stock was flat in Friday trading, while Microsoft stock was down 0.6%. Shares of Alphabet, parent of Google, were up 0.5%.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 20, 2024 10:52 ET (15:52 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments