Oracle (ORCL) stock rallied on excitement about its role in the $100 billion Stargate AI project, before the emergence of DeepSeek's cheaper algorithm caused investors to question that type of big spending. Now with Oracle's fiscal third-quarter results expected next week, analysts are debating whether the report can help the stock break out of its slump.
Monness Crespi Hardt analyst Brian White upgraded Oracle stock to neutral from a sell call in a client note Monday.
↑ X NOW PLAYING How Big Of A Threat Does DeepSeek's Disruption Pose To AI, Energy And Utility Stocks?"In our view, Oracle represents a high quality company with the opportunity to participate in a cloud transformation and benefit from the gen AI trend," White wrote. "However, valuation is stretched, capex spending unsustainable, competition fierce, software in transition, and the macro environment fragile."
Meanwhile, Barclays analyst Raimo Lenschow said Q3 is a "seasonally small" quarter but shares could react positively if Oracle's guidance is strong and the company provides positive commentary on the Stargate project. He reiterated an outperform call for Oracle stock in a client note Monday.
On the stock market today, Oracle is down about 1% at 164.89 in recent action. Shares are down 1% on the year after rallying nearly 60% in 2024, Oracle stock's best year since 1999.
White described Oracle stock's rocky recent trading as the "euphoria of Stargate" giving way to "DeepSeek blues."
Oracle stock surged nearly 15% on news that it would join OpenAI and SoftBank as initial funders of a $100 billion Stargate AI investment plan, which was touted in a press conference by President Donald Trump on Jan. 22. The spending could reach $500 billion long-term, according to the announcement.
But less than a week after the White House press conference, AI stocks sank after Chinese startup DeepSeek launched a high-performing large language model for what it said was a significantly lower cost than industry leaders such as OpenAI. Oracle stock lost 14% within a broader market sell-off on Jan. 27.
After an up-and-down February, Oracle stock is more than 10% below the highs it reached after the Stargate project and even further from a 198.31 all-time high from early December.
Overall, analysts expect Oracle will post adjusted earnings growth of 11% to $1.49 per share for the February-ended quarter, according to FactSet. Sales are seen rising 8% to $14.4 billion.
Oracle's cloud infrastructure revenue growth helped power its strong 2024. The database software giant is pushing to becoming a cloud alternative to the "big three" of Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL).
The business will remain in focus for investors with this report. Barclays' Lenschow projects Oracle's cloud infrastructure revenue will rise 53% year over year for the quarter, a slight acceleration from 52% growth in the November-ended quarter.
But Lenschow said investors are likely to focus on commentary around longer-term AI demand.
"The big unknown for the Q3 results is around Oracle's Stargate opportunity as this has the potential to have a meaningful impact on the company and with that, trump any noise from the quarterly numbers," Lenschow wrote. "With $500 billion in planned investments (over the coming four years) for the Stargate Project and Oracle earmarked to build and operate the computing system together with OpenAI and Nvidia (NVDA), we could see management discuss numbers that will simply change the Oracle AI story once again."
Meanwhile, Oracle stock has formed a consolidation pattern with a buy point of 198.31, according to MarketSurge pattern recognition.
Oracle stock has an IBD Composite Rating of 90 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. Further, the best growth stocks have a Composite Rating of 90 or better.
Meanwhile, Oracle's IBD Relative Strength Rating is 88 out of 99. The RS Rating means that Oracle has outperformed 88% of all stocks over the past 12 months.
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