Oracle stock has wavered in the past few months as investors watch the developments at OpenAI, one of its biggest clients. ORCL was trading at $142.35 on Friday, down by 42% from its highest point this year. On the positive side, there are signs that the stock is bottoming, which may lead to a rebound soon.
Oracle stock pressured by OpenAI woes
There are signs that OpenAI is going through challenges as competition in the AI industry jumps. The most recent report is that the company’s annualized revenue currently stands at below $50 billion, much lower than the $70 billion that media reports suggested. This revenue figure is much lower than Anthropic’s, which plans to go public later this year in a $2 trillion deal.
OpenAI is expected to burn over $280 billion through 2030, raising concerns on whether it will be profitable any time soon. As such, some investors are afraid that it will need to scale down some of its commitments, including those to Oracle.
At the same time, Oracle has faced some challenges at Project Jupiter, its large data center project in New Mexico. It recently issued a force majeure for this project because of the fierce opposition in the state. While the company believes that it will develop this project on time, there is a risk that the delays will boost its costs.
These risks explain why the company’s bonds are trading at near-junk levels. Bonds maturing in 2056 yield 8.27%, while those maturing in 2034 yield 7.57%. As a result, the spread over government bonds has continued to widen.
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Strong growth may offset the risks
On the positive side, there are signs that Oracle’s strong revenue growth and cheaper valuation may make it a good buy. The most recent results showed that its revenue jumped from $14.9 billion in the August quarter of last year to $19.3 billion. Most of this revenue was from its cloud infrastructure business, which grew by 121%. Its cloud applications revenue rose by 10% to $4.2 billion.
Most importantly, the company continued to expand its backlog. It ended the quarter with a remaining performance obligations rising to $664 billion. This RPO was much higher than expected and is one of the biggest ones in the tech industry.
At the same time, analysts expect its revenue growth to continue growing in the foreseeable future. Its annual revenue is expected to jump by 34% to $90 billion, followed by $131 billion next year.
At the same time, it has become relatively undervalued, with its forward price-to-earnings ratio of 16.6 being much lower than the sector median of 22. The multiple is also much lower than the five-year average of 22.
Oracle stock price technical analysis
ORCL stock chart | Source: TradingView
The daily chart shows that the ORCL stock has remained in a tight range in the past few months. Most recently, it dropped from the September high of $169.95 to the current $141. It remains below the 50-day moving average.
On the positive side, the stock has formed what looks like a double-bottom pattern whose neckline is at $169.95, its highest point on September 8. This pattern normally leads to a rebound over time.
Therefore, the most likely scenario is where it rebounds and possibly hits the resistance at $169.94. A move above that level will point to more gains, potentially to $200. On the other hand, a drop below the support of $137 will invalidate the bullish outlook.
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