Oracle ORCL faces mounting security challenges that could significantly impact its market position and investor confidence. After two confirmed security breaches within a single month, questions arise about the company's ability to protect sensitive client data while simultaneously addressing lackluster financial performance.

Multiple Security Breaches Raise Red Flags

According to recent reports, Oracle has informed customers about a second cybersecurity breach where hackers stole client login credentials. The FBI and cybersecurity firm CrowdStrike are investigating this incident, which the company claims is separate from another hack disclosed to healthcare customers in March.

While Oracle initially denied claims that its cloud storage had been compromised, the company later acknowledged to clients that an attacker had infiltrated what it described as a legacy environment. ORCL attempted to downplay the severity by stating the compromised system hadn't been used for eight years, suggesting minimal risk from the stolen credentials.

However, contradicting this position, a source familiar with the breach indicated the stolen data included customer login credentials from as recently as 2024. Cybersecurity researchers at Trustwave Holdings validated the data posted for sale online as directly extracted from Oracle, describing it as a rich dataset that could enable phishing attacks and potential account takeovers.

Healthcare Data Compromised in Earlier Breach

The latest security incident follows a separate breach where hackers accessed Oracle servers and copied patient data in an apparent attempt to extort multiple U.S. medical providers. Oracle alerted some users of its patient records management software that after Jan. 22, hackers had copied patient data to an external location.

This breach has particular significance given Oracle's $28 billion acquisition of Cerner Corp in 2022, which expanded the company's presence in the electronic health record sector. The acquisition included a $16 billion contract with the U.S. Department of Veterans Affairs, which has already experienced highly publicized outages and congressional scrutiny.

Financial Performance Doesn't Justify Premium ORCL Valuation

Beyond security concerns, Oracle's recent financial performance raises additional red flags for investors. The company's third-quarter fiscal 2025 results missed analyst expectations on both earnings and revenues. Oracle reported non-GAAP earnings of $1.47 per share, missing estimates by 0.68%, while revenues of $14.13 billion lagged projections by 1.59%.

ORCL's capital expenditures ballooned to $5.9 billion in the fiscal third quarter alone, roughly equal to its operating cash flow for the period. Management projects capital expenditures will reach approximately $16 billion for fiscal 2025, more than double last year's figure. This aggressive spending is putting pressure on free cash flow, which declined 53% on a trailing 12-month basis.

The consensus mark for fiscal 2025 earnings is pegged at $6.04 per share, down 2.9% over the past 30 days.

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Oracle trades at an EV/EBITDA multiple of 16.76, substantially above the Zacks Computer-Software industry average of 14.76x. This premium valuation suggests that investors have already priced in exceptional future growth — growth that Oracle is increasingly struggling to deliver with modest revenue increases of just 6% year over year (8% in constant currency).

ORCL EV/EBITDA Ratio Shows Premium Valuation

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Supply Chain Challenges Hampering Cloud Expansion

During its recent earnings call, Oracle acknowledged that component delays have hampered cloud capacity expansion — a significant admission for a company positioning itself as a critical infrastructure provider for AI workloads. At a time when competitors like Amazon AMZN-owned Amazon Web Services, Microsoft MSFT, and Alphabet GOOGL-owned Google Cloud are rapidly scaling their infrastructure to meet surging AI demand, Oracle's supply chain challenges represent a competitive disadvantage that could cost it critical market share.

Oracle's performance on Wall Street tells a more complex story. With a 25.3% decline in the year-to-date period, ORCL has underperformed both the broader Zacks Computer & Technology sector and the S&P 500, which declined 22.4% and 15.6%, respectively. Shares of Alphabet, Microsoft and Amazon have also outperformed Oracle, but declined 23.6%, 15.9% and 22.2%, respectively, in the past year.

Year-to-date ORCL Stock Price Performance

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Investment Outlook: Consider Selling ORCL Stock

The combination of serious security breaches, missed earnings expectations, capacity constraints, and declining free cash flow presents a concerning picture for Oracle investors. While the company touts large AI-related contracts, its actual revenue growth remains modest, raising questions about Oracle's competitive position in the rapidly evolving cloud infrastructure market.

Given these concerning trends, Oracle's Zacks Rank #4 (Sell) appears well-justified. The recent pullback of 25.3% year to date may signal an opportune time to reconsider positions. With Oracle's growth failing to accelerate meaningfully despite massive capital investments and multiple security incidents potentially damaging customer trust, the fundamental case for the stock has weakened considerably.

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