Oracle shares have been under significant pressure lately. Following the company’s June 10 quarterly results, ORCL has lost approximately one-third of its market value, with Monday’s sharp 6%+ decline compounding investor losses.
The catalyst for Monday’s selloff was Apple’s decision to sue OpenAI, accusing the artificial intelligence company of misappropriating proprietary information. This development carries weight for Oracle given its massive $300 billion agreement with OpenAI focused on AI infrastructure development and computing services.
Any litigation challenges facing OpenAI create uncertainty around whether the AI company can fulfill its contractual commitments — a prospect that’s making Oracle shareholders uneasy.
But the Apple-OpenAI legal battle isn’t the only headwind. Last week, S&P Global lowered Oracle’s credit rating to BBB- from BBB. The ratings agency highlighted elevated business risk and warned that if OpenAI defaulted on payments, Oracle could be stuck with enormous data center lease obligations without an easy exit strategy.
According to S&P’s analysis, OpenAI represents about half of Oracle’s total remaining performance obligation. This degree of revenue concentration poses serious risk for a company taking on substantial debt loads.
Oracle’s June quarterly report initially appeared solid — both revenue and profit exceeded forecasts, while executives emphasized robust demand for AI-powered cloud infrastructure. However, investors focused heavily on the price tag attached to meeting that demand.
Executives disclosed plans for capital expenditures reaching up to $95 billion by fiscal 2027, well beyond Wall Street’s estimates. Oracle also intends to secure approximately $40 billion through a combination of debt issuance and equity raises to finance this expansion.
Additionally, management cautioned that gross profit margins would face pressure as newly launched AI data centers ramp up before achieving optimal capacity utilization. This trifecta — aggressive spending, equity dilution, and compressed margins — triggered the post-earnings decline.
ORCL was changing hands around $131.80 on Monday, a steep fall from its 52-week peak of $345.72.
Despite the pessimism, not every market observer is bearish. Steven Fiorillo, who ranks among the top 1% of equity analysts on TipRanks, believes the market reaction has been excessive.
“The market chose to price all the risk and none of the CapEx conversion, which I believe is our opportunity,” Fiorillo said.
His thesis centers on Oracle’s expanding backlog of committed contracts eventually translating into revenue streams as new facilities become operational. He also points out that an increasing number of customers are financing their own infrastructure projects, which lightens Oracle’s financial load.
Fiorillo further highlights that Oracle has incorporated contract provisions allowing it to transfer higher construction and equipment costs directly to customers.
While acknowledging legitimate concerns — mounting debt obligations, continued capital market activity, anticipated negative free cash flow for at least another year, and significant customer concentration — Fiorillo contends these risks are now priced into the stock. “I am very bullish on ORCL at these levels,” he stated.
The broader analyst community largely shares the view that the selloff has gone too far. Oracle carries a Strong Buy consensus rating derived from 31 analyst assessments, including 28 Buy recommendations and 3 Hold ratings. The mean price target stands at $263.86.
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