Oracle Stock Dips 7% Amid Skepticism at AI Conference

Oracle’s stock experienced a notable pullback on Friday, dropping 7% in its steepest single-day decline since January, temporarily halting a rally fueled by the company’s increasing significance in the burgeoning artificial intelligence (AI) sector.

This downturn followed the unveiling of Oracle’s ambitious long-term financial projections at its Oracle AI World conference in Las Vegas on Thursday. The projections, heavily reliant on growth driven by AI adoption, sparked an initial wave of investor enthusiasm before giving way to cautious scrutiny.

The company forecasts a substantial increase in cloud infrastructure revenue, anticipating it to reach $166 billion in fiscal year 2030, a significant leap from the projected $18 billion in fiscal year 2026. Oracle further anticipates adjusted earnings per share of $21 on total revenue of $225 billion in fiscal year 2030, translating to an annualized sales growth exceeding 31%. This aggressive growth target hinges on Oracle’s ability to capitalize on the demand for AI infrastructure and services. The market potential is undeniable, but execution will be key.

Thursday’s initial market reaction was positive, with Oracle shares climbing 3.1%, extending a rally that has seen the company’s market capitalization swell by over 160% in the past two years. This surge reflected investor confidence in Oracle’s strategic shift towards cloud computing and its ability to compete with established players like Amazon Web Services (AWS) and Microsoft Azure.

However, Friday’s market activity revealed a rising tide of skepticism. Analysts are now dissecting Oracle’s projections, carefully evaluating the plausibility of these ambitious goals given the competitive landscape and the potential for unforeseen challenges in scaling its AI infrastructure.

“It feels like the stock may take a bit of a breather here as investors digest those numbers and try to get comfort around the achievability of long-term numbers,” noted Rishi Jaluria, an analyst at RBC Capital Markets, in an email to CNBC. Jaluria currently recommends holding the stock, suggesting a wait-and-see approach as the market assesses Oracle’s execution.

Oracle has strategically positioned itself to benefit from the growing demand for AI infrastructure, securing significant deals to supply AI chips. Notably, the company recently announced a five-year agreement with OpenAI, valued at over $300 billion, to provide access to these vital resources. Oracle’s September earnings report further solidified its position, reporting a record performance driven by a substantial backlog of orders. The company cited $455 billion in remaining performance obligations, a staggering 359% increase compared to the previous year, signaling strong future revenue visibility. This underscores the massive demand for AI-related services and infrastructure.

The company confirmed a cloud deal with Meta, further validating its growth strategy in the cloud space. Oracle also reported securing $65 billion in cloud infrastructure commitments in the current quarter, signaling sustained momentum. Moreover, Oracle anticipates adjusted gross margins on AI infrastructure to fall between 30% and 40%, a figure exceeding some analysts’ initial expectations. This indicates Oracle’s potential to achieve profitability in the highly competitive cloud market.

UBS analyst Karl Keirstead raised his price target for Oracle to $380 from $360 in a note on Friday, arguing that the current stock price undervalues the potential upside from the company’s AI-powered acceleration. The shares closed on Friday at $291.31, suggesting significant room for potential growth, according to Keirstead’s analysis. However, he also acknowledges potential risks that could limit future gains.

Keirstead identifies several points to consider as a “bear case” scenario, including the risk associated with concentrating its business with OpenAI and potential “go-live bottlenecks” related to such an aggressive buildout of infrastructure. These factors highlight the challenges inherent in scaling infrastructure to meet the demanding requirements of leading AI developers.

Oracle’s leadership remains highly confident in its strategy and execution. Clay Magouyrk, one of Oracle’s two CEOs, emphasized the breadth of Oracle’s customer base during the conference, stating that this quarter’s commitments came from “across seven different contracts from four different customers.” This attempt to diversify its portfolio aims to reduce dependence on single clients and highlights the company’s growing footprint in the AI landscape.

“None of those customers are OpenAI,” Magouyrk clarified. “I know some people are questioning sometimes, ‘Hey, is it just OpenAI?’ The reality is, we think OpenAI is a great customer, but we have many customers.” This statement attempts to diffuse concerns about over-reliance on a single client and underscores the diversity of Oracle’s client base, potentially assuaging investor concerns about concentration risk.