Soaring by 91% in 2025, is it still a viable option to invest in Oracle's stock surge?
Oracle Corporation (ORCL) reported a impressive year-over-year increase in remaining performance obligations (RPO) to $455 billion, marking a significant milestone for the tech giant. This growth, however, comes amidst challenges in other areas, as the company grapples with a high debt-to-equity ratio and negative free cash flow of $362 million in Q1.
The company's stock saw its best daily performance since 1992 last week, with a 4% increase this morning. Despite this, the year-to-date return for ORCL stock is only approximately 91%. The consensus price target of $326.12 suggests expected upside potential of only about 4.5% from current levels.
Oracle's strategic position in AI computing has been bolstered by partnerships with OpenAI, xAI, and Meta (META). Furthermore, the company's massive contracted backlog suggests high revenue visibility. However, substantial capital expenditure requirements remain, as Oracle prepares for a fiscal 2026 capital expenditure of $35 billion to support cloud infrastructure expansion.
The pending TikTok deal involves Oracle's cloud deal with the social media platform, which could potentially boost Oracle's cloud revenues. Oracle has contractually committed to providing cloud services for TikTok, maintaining their cloud contract and being part of a consortium to support TikTok in the USA. The risk for Oracle lies in becoming a key player entangled in the political tensions and national security scrutiny between the USA and China regarding TikTok's ownership and data handling.
Oracle trails Amazon (AMZN), Microsoft (MSFT), and Google (GOOG)(GOOGL) in overall cloud market share. However, the company's cloud infrastructure revenue has demonstrated strong momentum, climbing 55% year-over-year. Oracle's management projects Oracle Cloud Infrastructure (OCI) revenue will grow 77% to reach $18 billion in fiscal 2026.
The 14-day Relative Strength Index (RSI) for ORCL has cooled down from an overbought high above 83, indicating a potential correction in the stock's price. Despite this, the stock is currently rated a "Strong Buy" by an average of 37 analysts in coverage.
The framework deal for the TikTok deal includes both new and existing investors, suggesting a positive outlook for Oracle's involvement in the deal. As Oracle navigates these challenges and opportunities, the company continues to shape the future of cloud computing and AI technology.
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