Analysts Highlight Oracle’s AI Potential Despite Recent Setbacks

Oracle Corporation (NYSE: ORCL) is currently under scrutiny as analysts assess its long-term potential in the artificial intelligence sector. On November 26, Deutsche Bank reaffirmed its “Buy” rating for Oracle, setting a price target of $375.00. The firm believes that the market is not fully recognizing Oracle’s exposure to OpenAI, despite acknowledging certain risks.

Recently, Oracle’s stock price faced challenges due to concerns surrounding its commitments to AI capacity and capital expenditure, particularly related to its partnership with OpenAI. In light of these concerns, Deutsche Bank has conducted an in-depth analysis to better evaluate Oracle’s future financial performance.

Financial Outlook and Valuation Adjustments

The analysis utilizes long-term guidance provided by Oracle’s management during the Financial Analyst Meeting held in October. It aims to project the company’s financials for fiscal year FY30, excluding revenues and additional capital expenditures associated with OpenAI. Deutsche Bank estimates a $4 decrease in earnings per share (EPS) to $17 and a $10 billion reduction in free cash flow (FCF) to $31 billion relative to Oracle’s guidance.

This evaluation suggests that Oracle is receiving minimal, if any, recognition for its engagement with OpenAI at the current share price of approximately $200. While there are concerns regarding Oracle’s long-term lease obligations, the bank notes a degree of flexibility surrounding these commitments.

Analysts further examined the implications of lease expenses related to potential lost business with OpenAI. They calculated that if Oracle were to allocate an estimated 50% of these lease expenses to foregone opportunities in the AI sector, it could lead to a further reduction in EPS to about $15 and FCF to approximately $26 billion.

Broader Market Context

Oracle Corporation is a leading provider of database management and cloud services. While Deutsche Bank recognizes the risks associated with investing in Oracle, they maintain a level of conviction about its potential. Nonetheless, some analysts suggest that other AI stocks might offer higher returns in a shorter timeframe.

Investors looking for promising AI stocks may want to explore alternatives that are perceived to have greater upside potential. A report indicates that certain AI stocks could present an opportunity for returns as high as 10,000%.

As the landscape of AI investments evolves, Oracle’s capacity to leverage its partnerships and technologies will be closely watched by market analysts and investors alike.