Oracle’s Stock is Red Hot. So Why Is Wall Street Divided?

Key Takeaways

• After a recent runup powered by an AI-fueled outlook, database giant Oracle has become the best-performing tech stock in the S&P 500, trailing only AI chipmaker Nvidia.
• Wall Street analysts are divided on Oracle’s stock amid concerns its growth story could hinge on its ability to ride the AI boom. 
• Some analysts warned Oracle’s “aggressive” growth targets could leave the company little room for error.

Could Oracle (ORCL) be this year’s next big AI-fueled hypergrowth story? 

It’s already had a blockbuster 2024. After a recent runup powered by an upbeat AI-fueled outlook, the database giant has become the second best-performing tech stock in the S&P 500 of the year—trailing only AI chipmaker Nvidia (NVDA). The surge has thrilled shareholders and enriched founder Larry Ellison, who is in a nip-and-tuck race with Amazon’s (AMZN) Jeff Bezos to be the world’s second-richest person.

But while some hot stocks get the full backing of Wall Street, analysts are divided about what’s next for Oracle. The mean price target on Oracle’s shares is currently $174.67, according to Visible Alpha, only a modest 4% above Friday’s close.

‘The Sun Shines in the Oracle Cloud’

Oracle, with a client base that includes Fortune 500 companies as well as governments, remains one of the world’s leading database enterprise companies, though it faces rising competition from newer rivals in an increasingly cloud-centric environment.

And there is plenty of support for Oracle out there, with more than half of the analysts tracked by Visible Alpha currently sporting “buy” ratings on the shares.

Jefferies analysts said they believe Oracle could be “getting its mojo back” after attending the company’s recent CloudWorld event, where the tech stalwart said it expects sales to nearly double in the next five years on AI-driven demand for cloud services.  Bernstein called Oracle their “top investment idea” after the event, citing Oracle’s cloud services growth, AI vision, and the shift of its flagship database business to the cloud, writing that “the sun shines in the Oracle Cloud.”

Recent agreements with Big Three cloud providers Amazon, Microsoft (MSFT), and Alphabet’s (GOOGL) Google, as well as its “AI-first cloud architecture” could also play a role in helping Oracle support growth, according to Melius analysts, who see those partnerships as a signal that those companies “need to work with Oracle to keep driving their own Cloud segment growth to please investors.” 

Bernstein analysts said the partnerships could also give Oracle opportunities to introduce its services to new customers, as well as sell existing customers on a wider range of offerings.

“Now that the train has left the station, we believe investors will continue to reward Oracle for faster revenue growth,” Melius analysts wrote. 

‘Reaching for the Sky’

Some analysts, however, expressed skepticism about Oracle’s ability to deliver on its new growth targets and suggested they could leave the company little room for error. 

At Oracle’s annual briefing for financial analysts, the company said it expects its revenue will rise to at least $104 billion by fiscal 2029, nearly doubling the $53 billion Oracle reported in June for fiscal 2024. The company also raised its sales projection for fiscal 2026 to at least $66 billion, up from an earlier $65 billion. Both of those figures were well ahead of the analyst consensus compiled by Visible Alpha.

Citi analysts called the new targets “aggressive” and said Oracle could be “reaching for the sky” with its projections.

“It’s hard for us to underwrite,” they wrote. “We’re comfortable on the sidelines.”

Read the original article on Investopedia.