Should I Buy Oracle (ORCL)? Finance YouTuber Analysis

The analyst suggests avoiding Oracle due to its high debt levels compared to its peers. He notes that Oracle's debt to asset ratio is 64%, significantly higher than other tech giants, and its free cash flow is burning. S&P Global also downgraded Oracle's credit rating, indicating increased risk.

“Oracle, I agree, is the riskiest of the bunch in terms of how much debt it has. It's debt to equity, debt to assets, debt to sales. Regardless of the metric we want to utilize, Oracle is in the most concerning, the most leveraged position out of these five companies.”

The analyst rates Oracle as a buying opportunity, noting its current valuation is near the lower end of its historical range, despite a forward P/E of 17.5. He calculates a fair value of $219 per share, indicating it is undervalued, and acknowledges its accelerating revenue growth and improving operating profit margins.

“Oracle, at its market price of $140 per share, is well below the fair value I calculated at 219. So, it looks undervalued whether I measure on a forward PE or whether I measure using a DCF.”

The analyst reiterates a 'buy' rating for Oracle, noting that despite a post-earnings stock drop, his updated discounted cash flow model shows the stock is undervalued at $189, with an intrinsic value of $215 per share. He highlights strong remaining performance obligations (RPO) growth, increasing operating cash flow, and customer prepayments reducing capital outlay, suggesting that market skepticism about OpenAI contracts is an opportunity. He also sees potential future catalysts in AI's application to healthcare.

“Oracle stock does still look undervalued after the company reported these results. I've had Oracle stock rated as a buy for over a year now, and I will reiterate that rating. I still think the stock is a buying opportunity. Risky, to be sure, but I think the risk versus reward is attractive at these prices.”

The YouTuber notes Leopold Aeschbacher's $1 billion put option on Oracle, suggesting a bearish position. This aligns with the broader theme of Aeschbacher rotating away from potentially overvalued semiconductor and software names towards AI infrastructure.

“And then Oracle at about $1 billion in puts.”

The YouTuber entered a put debit spread on Oracle ahead of earnings, anticipating a short-term move lower due to high expectations and the stock's strong run. He reasoned that even good earnings might not meet 'exceptional' expectations, leading to profit-taking and a potential pullback.

“I entered an Oracle put debit spread ahead of earnings and was able to generate a profit while keeping my risk defined from the moment that I entered this trade. When I entered this position, I was looking for Oracle to collapse.”

The speaker is sticking with Oracle, believing it's unjustly punished due to AI fears. They note Oracle was an early adopter in AI investment and its stock took off with the OpenAI relationship, suggesting the current downturn is an overreaction.

“I'm still sticking with Oracle. I'm sticking with Microsoft. I'm sticking with pound. Do you think Oracle is trading? Because I think in the in this in the late winter, early spring when everything else was going down, it made a lot of sense.”

The analyst advises avoiding Oracle due to its massive debt load, which is projected to increase significantly, and exploding capital expenditures for AI investments. Despite growing revenue and remaining performance obligations, the company is currently burning cash, leading to concerns about the return on investment for its highly leveraged AI strategy and potential further stock dilution.

“Oracle, absolutely not a stock that I'm buying today.”

The analyst advises selling Oracle, noting its shift to becoming a hyperscaler has led to significant capital expenditures exceeding operating cash flow. The company has over $100 billion in debt, partly from financing buybacks, and the cost of its debt is rising, making it harder to fund its AI infrastructure buildout and meet performance obligations.

“The price of Oracle's debt has dropped, meaning the yield has gone up significantly. This is the yield to maturity for their longestterm debt, 6.44. That is up about 2 percentage points just in the past couple of months.”

The analyst is uncomfortable with Oracle due to its significant deal with OpenAI, which he views as part of a speculative AI bubble. He questions the long-term sustainability and profitability of OpenAI, suggesting that Oracle's gains from this partnership might be built on an unstable foundation.

“That's what ultimately makes me really uncomfortable with stocks like Nvidia, Oracle, even Microsoft to an extent.”

The analyst advises avoiding Oracle due to its significant debt load ($93 billion) accumulated from stock buybacks, which exceeds its free cash flow. Despite its AI expansion, Oracle lacks the cash-generating ability of competitors like Microsoft or Alphabet, making it a highly leveraged company in a competitive AI cloud market.

“Oracle is going to be one of the most leveraged AI companies today because of that debt load because they don't have a huge cash generating business the way that Microsoft and Alphabet and even Meta do.”

The YouTuber states that Michael Burry sold his entire position in Oracle. This action is framed as part of a broader strategy to exit tech companies that have become expensive, with P/E multiples potentially in the 25-30 range.

“CVS he sold out of toast Oracle booking holding alphabet and Warner Brothers Discovery even Amazon sold out of that position entirely”

The YouTuber suggests buying Oracle, stating that its recent stock drop is an overreaction to a strong earnings report. He highlights significant backlog growth, strong cloud revenue, and positive forward guidance, arguing that the market is misinterpreting increased capex and debt as negatives rather than investments for future growth and revenue recognition.

“Right now Oracle again good quarter good guidance overreaction by the market but as you know the market right now is headline driven.”

The YouTuber claims Oracle is using similar 'cloud credit loops' as other tech giants to boost its reported revenue and lock in customers. He advises investors to be cautious, as these manufactured sales figures can lead to inflated stock valuations that are not sustainable if the underlying organic demand is not present.

“Microsoft, Amazon, Oracle, and AMD are running the exact same cloud credit loops to pump their own ecosystems.”

The YouTuber considers Oracle an underestimated AI story, building essential cloud infrastructure for AI models and data centers. He points to accelerating revenue growth, 40% insider ownership, significant R&D and data center investments, and a $500 billion order backlog, including from OpenAI. While acknowledging debt, he sees Oracle as building the 'highway for AI' but notes execution risk.

“But, the way I think about it is that these guys are basically building the highway for AI.”

The YouTuber advises buying Oracle, which has dropped 58% from its peak due to concerns about funding its cloud buildout and AI revenue. He dismisses these fears, asserting that AI demand will drive spending. He points to a fair value based on its average PE ratio and strong earnings forecasts, indicating a 56% upside.

“Even better though, the $745 and forecasted earnings times the average PE ratio of 30 times gives us a fair value of $229 per share or 56% higher.”

Hogue suggests Oracle as a buy, despite being a later entrant to Agentic AI, due to its financial scale, established trust as a legacy tech giant, and existing relationships with thousands of companies. Its Agentic Studio and Nvidia partnership integrate over 160 AI tools, allowing for rapid scaling. He notes its low valuation at 6.9 times price-to-sales and expected growth acceleration to 14% next year.

“Oracle's existing relationship with thousands of companies over 48 years means it could scale the business super fast and surprise to the upside.”

The YouTuber points out Oracle's balance sheet as a red flag, with over $71 billion in goodwill and other intangible assets against $136 billion in total assets, meaning more than half of the company's value is in these immeasurable assets. This high proportion of goodwill is flagged as a potential risk, similar to Broadcom, suggesting caution for investors.

“We also see this in Oracle ticker orcl more than 71 billion in goodwi and other intangible assets against 136 billion in total assets that's more than half of the company.”

The YouTuber is watching Oracle's earnings report for insights into corporate IT spending. He anticipates that even if Oracle beats earnings, the outlook for the rest of the year could be negative due to cost pressures and supply chain issues, similar to competitor Cisco.

“I think it does beat its earnings expectations but it's still going to be negative especially on the outlook for the rest of the year”

The YouTuber suggests avoiding Oracle in the short term due to its drastically increased debt and negative free cash flow, driven by massive AI infrastructure investments. The market's fear of default is reflected in exploding Credit Default Swaps, indicating significant risk despite potential long-term growth.

“Am härtesten hat es hier tatsächlich Oracle getroffen. Bei denen sieht's ja auch aktuell echt nicht gut aus. In den letzten Jahren hat sich die Verschuldung bei den drastisch erhöht. Der freie Cashflow ist ja sogar ins Negative gedreht, weil sie halt eben so viel derzeit investieren und damit rechnen, dass der Auftragsbestand dann irgendwann in Umsatz realisiert wird.”

The YouTuber discusses Oracle as a market leader in database management and cloud ERP software, with a growing Oracle Cloud Infrastructure (OCI) business, especially for AI model training. Despite a high forward P/E of 122, an expected 20% annual earnings growth results in a PEG ratio just over 1, suggesting fair valuation. However, the high debt from acquisitions and massive infrastructure investments are noted as a risk.

“Trotz des Wachstums bleibt die Bilanz ein Risikofaktor in dem Unternehmen. Die Verschuldung ist sehr hoch.”

The YouTuber highlights the risk associated with Oracle's large commitments from OpenAI, questioning OpenAI's ability to pay hundreds of billions given its current revenue and unprofitability. He suggests that investing in data centers based on such commitments is risky, contrasting it with Brookfield's strategy of partnering with profitable companies and countries with strong balance sheets.

“And that's where I think the risk is is with those commitments from open AI, you know, commit or placing your bets on a company that's losing money and then they're committing to you hundreds of billions of dollars and then your business is investing in data centers to supply that capacity to them. That is risky in my opinion.”

The YouTuber advises avoiding Oracle stock due to its recent 40% jump based on a $300 billion OpenAI deal, which he believes is highly speculative. He argues that OpenAI's projected revenue and free cash flow burn make it unlikely to fulfill such a large commitment, making Oracle's valuation, now at 42x price to operating cash flow (historically 20x), extremely expensive and risky. He also criticizes management for creating hype rather than focusing on sustainable growth.

“So to me, I now think that Oracle stock is looking extremely expensive. And even when I was just taking a look at the earnings report, I saw not that stellar of numbers.”

The YouTuber advises against buying Oracle, noting its current P/E ratio of 46 is significantly higher than its 10-year average of 16. While acknowledging its AI-driven growth potential, he believes the stock is currently too expensive and not an ideal buying opportunity, even with projected earnings growth.

“Wir sehen dass wir aktuell ein KGV haben hier auf dem Bereich gewinn von 46, der 10 Jahres lieg bei 16 und hier siehst du eben, wo wir gerade sind und das ist natürlich schon erscheint auf jeden Fall schon recht teuer.”

The YouTuber notes Oracle's significant contract backlog, which led to a 40% stock surge in one day. It's valued at 50 times earnings with expected growth of 15-20%, making it a good company within the AI basket.

“Oracle, que hemos hablado antes de estos contratos, como ha subido un 40% en un día, está en la oración de 50 veces beneficios con crecimientos esperados del 15 al 20.”