TLDR
- Oracle stock fell more than 6% after Apple filed a lawsuit against OpenAI, raising concerns about Oracle’s $300 billion partnership with the AI company
- S&P Global recently downgraded Oracle’s credit rating to BBB- from BBB, citing rising business risk
- Oracle plans to spend up to $95 billion in capital expenditures in fiscal 2027, well above Wall Street expectations
- OpenAI accounts for roughly half of Oracle’s remaining performance obligation, creating concentration risk
- Despite the selloff, Oracle holds a Strong Buy consensus from analysts with an average price target of $263.86 — about 95% above current levels
Oracle stock has had a rough stretch. Since its June 10 earnings report, ORCL has shed about a third of its value, and Monday’s 6%-plus drop only added to the pain.
The immediate trigger was Apple filing a lawsuit against OpenAI, alleging the AI company stole trade secrets. That matters for Oracle because it signed a $300 billion deal with OpenAI to build out AI infrastructure and sell compute to the company.
Any legal trouble for OpenAI raises questions about its ability to hold up its end of that deal — and that has investors nervous.
It’s not just the Apple lawsuit spooking the market. Last week, S&P Global downgraded Oracle’s credit rating to BBB- from BBB. The agency flagged rising business risk and pointed out that if OpenAI were unable to pay, Oracle could be left holding massive data center leases it can’t exit.
S&P estimates OpenAI makes up roughly half of Oracle’s remaining performance obligation. That level of customer concentration is a real concern for a company taking on this much debt.
The CapEx Problem
Oracle’s June earnings report looked strong on the surface — revenue and earnings beat expectations, and management talked up surging demand for AI cloud infrastructure. But the market zeroed in on what it costs to meet that demand.
Management said it expects capital expenditures of up to $95 billion in fiscal 2027, far above what Wall Street had penciled in. Oracle also plans to raise around $40 billion through debt and equity to fund that expansion.
On top of that, the company warned gross margins will dip as new AI data centers come online before they reach full utilization. That combination — massive spending, shareholder dilution, and near-term margin pressure — is what drove the selloff.
Oracle stock was trading around $131.80 on Monday, down from a 52-week high of $345.72.
One Investor Sees an Opportunity
Not everyone is running for the exits. Steven Fiorillo, ranked in the top 1% of stock experts on TipRanks, sees the selloff as overdone.
“The market chose to price all the risk and none of the CapEx conversion, which I believe is our opportunity,” Fiorillo said.
He argues that Oracle’s growing backlog of contracted business will convert into revenue as new data centers come online, and that customers increasingly funding their own infrastructure buildouts reduces Oracle’s financing burden.
He also notes Oracle has built pricing mechanisms into contracts that can pass rising construction and hardware costs through to customers.
Fiorillo acknowledges the risks — growing debt, ongoing capital raises, negative free cash flow expected for at least another year, and heavy reliance on one customer. But he believes those risks are already reflected in the price. “I am very bullish on ORCL at these levels,” he said.
Wall Street broadly agrees the stock has been beaten up enough. Oracle holds a Strong Buy consensus based on 31 analyst reviews, with 28 recommending Buy and 3 rating it a Hold. The average price target sits at $263.86.
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