Oracle (ORCL): Evaluating Valuation After $30B AI Cloud Win and Rising Credit Risk Concerns

Oracle (ORCL) recently made headlines after unveiling a $30 billion annual cloud services contract. This move underscores its ambition in AI and cloud infrastructure. The company’s strategic shift, along with major data center investments, is drawing extra investor scrutiny.

See our latest analysis for Oracle.

Recent headlines have only amplified the spotlight on Oracle’s cloud ambitions, but the past few months have been rocky for its share price. After a surge tied to AI-driven optimism, Oracle’s 1-month share price return of -29.9% and a year-to-date gain of 19.7% tell the story: momentum has faded sharply in the near term. However, the 1-year total shareholder return still sits at 4.4% and its five-year total return remains a standout at nearly 269%. This combination of volatility and long-term outperformance reflects a market grappling with Oracle’s rapid strategic shift, balance sheet risks, and execution on new contracts.

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With all this volatility and renewed focus on AI, is Oracle’s sharp pullback a chance for investors to get in at a discount, or has the market already accounted for future growth in its price?

Most Popular Narrative: 42.2% Undervalued

Oracle’s most popular narrative points to a fair value substantially above the recent closing price, giving bulls reason to revisit their expectations. With the narrative’s fair value at $344.04, momentum could turn quickly if the underlying projections come to fruition.

Surging demand for AI workloads, both training and especially inferencing, has positioned Oracle as a key provider for major AI companies (e.g., OpenAI, Meta, xAI, NVIDIA). This has driven a 359% year-over-year increase in remaining performance obligations (RPO) and a robust acceleration in cloud infrastructure and database revenue. This supports expectations for sustained double-digit revenue growth over multiple years.

Read the complete narrative.

Want to know the secret behind Oracle’s sky-high valuation? The narrative is built on growth assumptions and future profit multiples usually reserved for tech’s top players. What ambitious targets are embedded in these forecasts? Find out which figures shape that bold price target in the full narrative.

Result: Fair Value of $344.04 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, sustained heavy investments and any slowdown in demand for AI infrastructure could quickly shift Oracle’s outlook and challenge its valuation assumptions.

Find out about the key risks to this Oracle narrative.

Another View: Testing Value Against Peers and Industry

Looking at share price versus earnings, Oracle trades at a ratio of 45.5 times, which is noticeably higher than both the US Software industry's 28.8 times and the peer group's 69.1 times. Interestingly, it still sits well below a fair ratio of 61.5 times that the market could eventually move toward. Is this premium justified, or does it set the stage for increased valuation risk if growth stalls?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Oracle Narrative

If you’re not convinced by these findings or want to run the numbers yourself, crafting your own perspective takes just a few minutes. Do it your way.

A great starting point for your Oracle research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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