Oracle is a “Decade Stock,” Could More Than Double, Says Analyst

Oracle (NASDAQ:ORCL | ORCL Price Prediction) has already been punished harshly by the market, thanks to its heavy debt load and OpenAI exposure. That said, the punishment just seems to keep coming for the fast mover in AI data centers. The stock shed another 2.2% on Thursday, sinking below the $170 per-share mark. Undoubtedly, the stock has already lost more than half of its value, but the same fears that have weighed down the stock for the past couple of months have continued to drive shares lower.

Of course, it’s tough to buy the dip and hold onto a contrarian view whenever there’s negative momentum like this. And while some analysts have turned against the stock, with price target downgrades well after the fact, there are some Wall Street pros who are standing by their hefty price targets. 

Undoubtedly, it’s tempting to chase a stock just because of its implied upside. However, investors must realize that with great reward comes much risk. So, investors should carefully weigh the risk/reward before jumping into a name that might be a bit too choppy for the average investor to stomach. Personally, I’m siding with the bulls, as Oracle’s growth narrative is misunderstood and its debt risks might already be priced in and then some.

Are AI costs really being underestimated?

Before we get into the bull case, let’s check out Morgan Stanley‘s price target cut on Oracle. The analyst behind the cut, Keith Weiss, is a well-respected analyst, but his cut seems rather untimely, in my humble opinion, especially since the stock has already been crushed. Cutting the price target by more than $100 per share is going to cause investors to take notice. Of course, Oracle has a big tab to pay, and AI data centers do not come cheap. There’s no doubt about that.

With concerns about whether the firm can hang onto its investent grade credit rating, it’s easy to sell on such a downgrade. And while Weiss’ downgrade is hefty, there have been a slew of other price target reductions in response to the crash in shares. In any case, I do think there are risks if Oracle’s credit rating gets downgraded. But I do think management can make moves to seize the growth opportunities without sinking its credit rating to “junk.”

In any case, I think the market has been going on about the costs, the debt, and the credit nonstop in the past couple of months. While there’s certainly great risk here, there’s also the potential for upside, especially if management can stay out of “junk” status while keeping the foot on the pedal.

In my humble opinion, the hefty tab due for Oracle has become an expectation rather than a source of another negative surprise. 

Or could Oracle really be a “decade stock?”

The downside risks are severe, but if Oracle can pull it off, it may very well be the “decade stock” that John DeFucci of Guggenheim sees. Undoubtedly, costs may be mounting, but if we are nearing a “trough,” perhaps focus could shift back to the massive RPOs sooner rather than later.

Could a “waterfall” of cash really be on the horizon? It’s tough to time, but I’d say there’s a chance that a big upside surprise could be on the table at some point in the near-future. Whether it’s enough of a surprise to convince investors to forgive the firm for its debt load and OpenAI dependence, though, remains to be seen.

In any case, Oracle stands out given its unique position in the AI data center race. Of course, it’s been buying boatloads of GPUs. But the “Bring Your Own Chip” business model might be one with immense potential. DeFucci is a bull on this model, as am I. Why? The AI chip landscape is changing fast.

Today, it’s all about Nvidia (NASDAQ:NVDA) GPUs. In a year or two, it might be more about custom chips. And for investors looking to bet on compute and everything that goes into it (think energy, cooling, connectivity, and all the sort), I think the model makes a lot of sense. For investors with no desire to pick winners in the AI chip race, I think Oracle stock is a compelling option, especially at these depths.

High risk, high reward

Though there’s a big tab to pay and uncertainties about whether OpenAI will be good for the money, I do think Oracle is putting big money in all the right places. The name demands patience, but time will tell if shares can more than double to some of the heftier price targets on Wall Street right now. DeFucci’s $400 target really does stand out, and, as an Oracle bull, I think it’s a realistic one.