To The Moon

$Oracle(ORCL)$

Oracle stock has been showing a really nice exponential growth trend, which I love to see when I'm analyzing a stock. Recently, though, the stock has dropped by around 15-16%. Given that Oracle operates in growing markets like cloud computing and artificial intelligence, I started to wonder if this could be a good opportunity to buy. So, I did some analysis, and I’m excited to share my findings with you today.

What Does the Company Do?

Oracle essentially provides cloud-based database services for companies, alongside a range of enterprise software and applications. In recent years, they've also expanded into cloud computing and artificial intelligence. But that’s not all—they also provide hardware and IT infrastructure, making them a diversified player in this space. Their strategy is to offer all-in-one products and services, so businesses can rely on Oracle for all their needs in the work environment.

Earning Overview

Oracle Corporation has a projected growth rate of 14.14%, which analysts are optimistic about—definitely a solid growth trend. From a quantitative standpoint, I would classify the stock as a hold. Let’s dive into the metrics:

The earnings per share (EPS) are all positive, which is exactly what we want to see. Earnings are expected to hit $6.15 in 2025. The growth trend is reflected in the share price, with my calculated intrinsic value sitting at $154, while the current share price is around $164. So, while it’s not undervalued, the next question is: is it a good business overall?

Oracle reported its quarterly financial results on March 10, 2025, and it was a mixed bag. There was both good news and some concerning news for Oracle investors. I’ll walk you through the latest figures and update my recommendation on Oracle stock. If you've been following the channel all year, you know that I ranked Oracle as one of my top nine stocks to buy in 2025. I’ll update that recommendation and let you know if I still consider it one of the best stocks to buy right now.

First, the great news: Oracle’s total remaining performance obligations (RPO) surged by 62% year-over-year to $130 billion. Let me explain why this is good news for investors. RPO represents sales contracts that Oracle has signed but hasn't yet fulfilled. As Oracle performs on these contracts, the revenue gets recognized, meaning this backlog is a strong indicator of future revenue and profit. With a $130 billion RPO, and operating margins around 31%, we can expect over $39 billion in operating income in the coming quarters and years. This shows a solid future for Oracle’s business.

Earnings per share also rose by 20%, reaching $1.02, and although revenue increased by 6%, it doesn’t look particularly impressive at first glance. However, if you’ve been following Oracle’s RPO, you’ll notice a significant uptick in demand for their services. In the latest quarter, Oracle signed sales contracts worth $48 billion, nearly half of their total RPO. This shows how rapidly sales are increasing as demand for Oracle’s services continues to grow, pushing RPO up by 63%.

Fundamental Analysis

Oracle’s competitive advantage lies in being the industry standard for database systems. As I mentioned earlier, they strive to offer everything under one roof. For instance, if a company uses Oracle's database system, they’re likely to use other Oracle products as well because it’s more convenient and switching to other providers becomes costly. This creates a strong customer lock-in, which is a major advantage for Oracle.

Additionally, Oracle has long-term government contracts, which provide stability and are tough for competitors to take away from them. This is another key advantage. Lastly, Oracle’s holistic software ecosystem allows them to integrate everything into one cohesive system, further strengthening their position in the market.

What are the company’s prospects? Oracle is currently focusing on cloud computing and AI expansion, although they were a bit late to the cloud computing space. However, they’ve formed key partnerships with major players like Nvidia, Microsoft, and OpenAI, which is a smart move and gives them a strong advantage moving forward. They’re also gaining market share in the enterprise software business, with a broader focus on global digital transformations, which bodes well for their future growth.

Who is the competition? The competition is intense, with all the big players in both AI and cloud services. For AI, this includes Microsoft, Amazon, and Google, along with anyone else offering cloud services. When it comes to data management software, Oracle faces competition from IBM, SAP, and Salesforce, particularly in customer relationship management (CRM) systems. It’s a highly competitive landscape.

Is the market growing? Yes, the market is growing significantly. The public cloud market is expanding at a compound annual growth rate (CAGR) of 17.7%, and the artificial intelligence market is expected to grow at an annual rate of 27%, according to Statista. This indicates strong growth prospects for Oracle in these areas.

Looking forward, Oracle expects this $130 billion sales backlog to drive a 15% increase in revenue starting in June 2025. The RPO is expected to keep growing at a fast pace, which is encouraging for Oracle’s prospects. The company also made headlines with its first Stargate contract, marking a significant opportunity to expand its AI training and inference business in the U.S. Chairman Larry Ellison mentioned that customer demand is at record levels, particularly for AI services, which is exactly what investors like to hear.

When we examine the financials, total revenue increased by 6% to $18.1 billion, while operating income grew by 16% to $4.35 billion. It’s great to see operating income growing faster than revenue, and based on Oracle’s forecast of 15% revenue growth next year, we could see operating income rise by 30% to 40%.

Guidance

Fiscal Year 2026 Revenue Target: Oracle CEO Safra Catz expressed confidence in achieving the company's revenue target of $66 billion for fiscal year 2026, representing approximately a 15% growth rate.

Fiscal Year 2027 Growth Projection: Looking further ahead, Oracle projects a growth rate of around 20% for fiscal year 2027, surpassing previous forecasts.

Free Cash Flow

The free cash flow is positive, but there’s no clear growth trend—it's actually been a bit up and down over the years, so that doesn’t instill much confidence. On the other hand, revenue is growing steadily, which is a good sign. Equity growth isn’t as solid; we do see some growth, but there have been periods of negative equity and even very low cash flow, though they’ve managed to turn that around.

Massive Debt

However, here’s the major red flag: their debt load is massive. If we look at the debt-to-equity ratio, which provides a better understanding of the debt’s size, we see it started at an astounding 1,600%. It has improved, but we're still at around 1,000%. That’s a huge concern. If interest rates rise and cash flow declines, this becomes a significant risk—one I’m just not willing to take. For this reason, I’m passing on purchasing the stock.

Technical Analysis

Oracle's business is partly cyclical, meaning it has both non-cyclical and cyclical segments. The non-cyclical segments include subscription-based services, which provide a steady and predictable flow of income since customers pay on a regular basis, either monthly or annually. These generate consistent revenue, so there’s no real cycle to worry about here. Government contracts also fall into this category—they’re long-term and stable, offering reliable income for the company. This creates a strong foundation for the business.

On the other hand, there are cyclical elements, such as IT hardware and new software deals. These are more dependent on market conditions and tend to fluctuate over time.

Risks and Challenges

This chart illustrates the situation quite clearly. The red line represents the debt, and while increasing debt in itself isn’t necessarily a problem, it depends on whether equity and cash flow are growing as well. If both are increasing, then rising debt can even be beneficial. However, if we look at the yellow line representing equity, we can see a significant decline starting in 2018. In fact, equity turned negative in 2022. The turquoise line, showing cash and cash equivalents, has also dropped drastically. If you focus on the 2018/2019 period, you can clearly see how the debt keeps rising, while both equity and cash equivalents decrease. This is an unsustainable situation and reflects a lack of financial discipline, which is a major risk in my view.

Additionally, Oracle has been slow to adapt to the cloud transition, which is another risk. A further concern is an economic slowdown, particularly with their high debt load. If interest rates rise, they would have to service this growing debt, which would significantly increase the risk. Lastly, Oracle also faces legal and regulatory risks, which are always present for large corporations.

Now, onto the concerns: Oracle's borrowing continues to rise. The company’s long-term debt increased from $76 billion to $88 billion between May 31, 2024, and February 28, 2025. This growth in debt is tied to investments in expanding physical capacity, such as building new data centers to meet rising customer demand. Oracle’s capital expenditures in the first nine months of fiscal 2025 more than tripled to $12.1 billion from $4 billion in the same period last year. While they need this investment to serve increasing customer demand, it raises the question of whether this spike in demand will be sustainable. If demand slows down, Oracle could be left with higher debt and capital expenditures without the revenue to support them.

Valuation

Let’s first look at some pricing metrics. The price-to-earnings (P/E) ratio for the trailing 12 months is 40.31, which is higher than the 5-year average of 29—fairly high. The forward P/E ratio for the next 12 months is 32.75, significantly above the 5-year average of 26.8. The price-to-book ratio is 35, but I wouldn’t place too much weight on that; the P/E ratios are more important here.

Oracle's intrinsic value at $156.73 per share, suggesting the stock is overvalued by approximately 8% compared to the current market price of $170.06. Using a discounted cash flow model with a five-year growth exit, ValueInvesting.io calculates Oracle's intrinsic value at $149.91 per share. Given the current market price of $147.66, this implies the stock is fairly valued with a slight upside potential of 1.5%.

Market sentiment

Increasing Debt: Oracle’s rising debt levels, particularly in the context of its $88 billion in long-term debt, are a point of concern for some investors. The company’s increasing reliance on borrowing to fund growth and expansion raises concerns about its ability to manage debt, especially if demand slows or interest rates rise.

High Capital Expenditures: Oracle has significantly ramped up capital expenditures to build the infrastructure needed to support its customer demand. While this is essential for future growth, some investors are worried about the sustainability of this spending and whether it will lead to higher costs without guaranteed returns.

Slow Cloud Transition: Although Oracle has made significant strides in cloud computing, it was relatively late to the game compared to competitors like Amazon, Microsoft, and Google. This delay could have long-term effects on its competitiveness in the cloud market.

Conclusion

Despite these risks, Oracle is generating strong cash flow, and profits and sales are increasing. In the nine months ending February 28, 2025, cash flow from operations jumped by over $2 billion to $14.66 billion. Oracle’s forecast for 2025-2029 remains relatively stable, with some years slightly raised and others lowered. Macroaxis provides an intrinsic value estimate of $158.26 per share for Oracle, indicating the stock is overvalued with a real value of $158.26 and a target price of $123.85. My Target Price is around $60-70 if thing back to Fundamental.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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