Oracle stock has been in a slump for months and it may be time to buy the dip, according to analysts at Oppenheimer & Co.
The firm upgraded Oracle stock to Outperform from Perform and issued a price target of $185 in a research note Wednesday. Oracle's investments in artificial-intelligence infrastructure may take time to pay off, Oppenheimer argued, but the valuation has become too cheap to ignore.
Oracle stock hit a record high of $328.33 on Sept. 10, after the cloud provider announced a $300 billion jump in remaining obligations under its customer contracts. But work with OpenAI accounted for the vast majority of the backlog. That revelation -- plus a decline in tech stocks and ongoing worries about how Oracle would finance its AI expansion -- has sent shares spiraling.
The stock was up 4% to $152 on Wednesday. It trades at around 19 times projected 12-month earnings, down from a multiple above 40 times in September.
"Multiples can always go lower," wrote analyst Brian Schwartz. "In our view, the selloff in ORCL shares since September limits the magnitude of the downside at current levels and presents an attractive risk/reward profile."
The risks around Oracle's shift to a more capital-intensive business focused on mass data-center construction are starting to clear up, Oppenheimer said. Most notably, cornerstone customer OpenAI continues to grow, lessening fears it won't be able to pay Oracle.
OpenAI's user growth re-accelerated to more than 800 million weekly users as of early February. It also continues to strike enterprise deals and appears to be building its first enterprise sales team. On the investment front, OpenAI is thought to be on the cusp of a $100 billion funding round.
Oracle's own financing risks also have been easing. Oppenheimer estimated the company will need around $330 billion in capital expenditures through fiscal 2030. Oracle made progress on that front earlier this month, announcing plans to raise $45 billion to $50 billion through a bond issuance.
As for the rewards: "Oracle is set to be one of the largest [earnings-per-share] growth compounders through the rest of the decade," Schwartz wrote.
If the company is able to get customer deals and financing in place, and execute its infrastructure buildout as planned, it is set for big gains. Oppenheimer revised Oracle's own guidance downward and still modeled 20% annual growth in earnings per share from fiscal 2027 to 2030.
That kind of growth puts Oracle in the "upper echelon" among large-cap names. And Wall Street should reward the company with higher multiples, Oppenheimer argued.
The firm called its Oracle upgrade a "contrarian bet" given the stock is, in its view, under-owned among investors. That said, the sell side continues to be bullish on Oracle. Of the 45 analysts polled by FactSet, 78% rate the stock the equivalent of a Buy, up from 67% at its September peak.
D.A. Davidson made a similar case two weeks ago, upgrading Oracle stock to Buy from Hold and maintaining a $180 price target. Positive news around OpenAI -- a relationship Wall Street had seen as a negative for Oracle stock -- made the firm more confident in the AI developer's ability to meet its obligations.
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