Oracle (ORCL) Stock: Why This 37% Pullback Could Be A Buying Opportunity?

TLDR

• Oracle shares have fallen 37% from their September peak of $346 to approximately $217 in just three months
• Investor anxiety centers on rising debt levels and capital spending for AI infrastructure that hasn’t delivered strong cash flow returns yet
• The company reports Q2 earnings December 10, with analysts expecting $1.64 EPS and revenue of $16.19 billion
• Mizuho maintains a $400 price target, arguing the selloff is overdone and demand for AI capacity remains strong
• Oracle’s forward P/E dropped from 40x to 27x, now trading cheaper than Microsoft’s 32x valuation

Oracle stock has taken a beating. The shares traded near $346 in September. Today they sit around $217.

That’s a loss of 37% in three months. Nearly 40% of the company’s market value has disappeared.

Oracle Corporation, ORCL

The reason for the decline is straightforward. Investors loved Oracle’s AI ambitions in September. They praised the nuclear-powered data center plans and expansion strategy.

Now they’re worried about the bill. Oracle is taking on debt to build infrastructure for AI labs like xAI and Cohere. The problem is these projects haven’t generated meaningful free cash flow yet.

The market wants to see returns. Instead, it’s seeing rising leverage and capital expenditures. The question investors are asking: will these investments pay off before the debt becomes a problem?

The Valuation Picture Changes

Oracle’s valuation has compressed dramatically. The forward P/E ratio dropped from over 40x to 27x. That’s actually cheaper than Microsoft, which trades at 32x.

Bears argue the discount makes sense. Oracle carries more debt and converts less of its revenue to free cash flow than cash-rich competitors. Bulls see a different story.

At 27x earnings, Oracle trades like a traditional software company. But Oracle Cloud Infrastructure is expected to grow over 70% this fiscal year. If management demonstrates capital discipline, the stock could be undervalued relative to its growth rate.

The nuclear data center narrative has cooled. Regulatory challenges and recent FERC rulings on power plant colocation have dampened enthusiasm. The market has stripped out any premium it was paying for that vision.

What December 10 Earnings Will Reveal

Oracle reports Q2 results Wednesday. Wall Street forecasts earnings of $1.64 per share, up 11.6% year-over-year. Revenue is expected to reach $16.19 billion, growing 15%.

The key metric will be backlog conversion. Oracle has a $400 billion backlog in remaining performance obligations. Impressive on paper, but it doesn’t service debt.

Investors need proof that heavy spending is converting to revenue quickly. If the backlog grows but revenue growth disappoints, it signals deployment issues or weakening demand.

Mizuho analyst Siti Panigrahi sees opportunity in the weakness. He maintains an Outperform rating with a $400 price target. Panigrahi notes Oracle dropped 34% while the broader software sector fell just 2%.

The analyst argues concerns miss a critical point. AI capacity demand still exceeds supply. Oracle converts new GPU deployments to revenue within weeks, showing strong monetization.

Panigrahi expects Oracle to outline data center financing strategies. Options include vendor financing and capital leases that reduce upfront costs and align spending with revenue generation.

Oracle gained an edge by stockpiling Nvidia GPUs early. This provided immediate availability when competitors faced shortages. The company’s RDMA networking architecture creates switching costs for AI customers.

Wall Street consensus stands at Moderate Buy. That’s based on 25 Buy ratings, 11 Holds, and one Sell. The average price target of $350.27 implies 61% upside from current levels.

The post Oracle (ORCL) Stock: Why This 37% Pullback Could Be A Buying Opportunity? appeared first on Blockonomi.