Oracle’s (ORCL) Long-Term AI Potential Remains Underappreciated, Analysts Say

ORCL -1.47% OPAI.PVT

Oracle Corporation (NYSE:ORCL) is one of th AI Stocks on the Market’s Radar. On November 26, Deutsche Bank reiterated its Buy rating on the stock with a price target of $375.00. The firm is constructive on Oracle, stating that it acknowledges risk but also believes that the market isn’t fully appreciating the company’s OpenAI exposure.

Oracle’s share prices recently experienced a setback amid concerns related to AI capacity commitments and capital expenditure plans, particularly as it is related to OpenAI. The firm has therefore conducted a deeper analysis to assess the potential valuation for Oracle.

“We utilize L/T guidance provided by mgmt. at the company’s Financial Analyst Meeting in October and our LT forecast framework (previously outlined here) to estimate Oracle’s FY30 financials excluding OpenAI related revenues and incremental capex.”

Deutche Bank forecast a $4 reduction in EPS to $17 and a $10bn reduction in FCF to $31bn relative to company guidance. The analysis implies that Oracle is getting little credit (if any) for its business with OpenAI “at the current share price of ~$200.”

The firm further acknowledged concerns regarding Oracle’s long-lived lease obligations, which it is responsible for regardless of the assumptions about its AI customers. However, it said there is “a good deal of flexibility/fungibility around these leases.”

Analysts also noted that if it were to burden Oracle’s financials with an estimated 50% of lease expenses related to foregone OpenAI business, “(assuming at min, the creditable share at a discount rate) it would imply a further reduction in EPS to ~$15 and FCF to ~$26bn.”

Oracle Corporation (NYSE:ORCL) is a database management and cloud service provider.

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