Analyst advised to buy Oracle stock: partnership with OpenAI no longer a risk?

DA Davidson analyst Jim Luria raised his recommendation on Oracle from "neutral" to "buy" and kept his target price at $180 per share, CNBC and Investing.com reported. This target implies growth of 26% relative to the closing price on February 6. Including on this background, Oracle securities at the opening of trading on February 9 added more than 9%.

Oracle is one of the main partners of ChatGPT developer OpenAI. Last fall it became known that the company signed one of the largest cloud contracts in history with OpenAI. According to it, starting from 2027 during the next five years, OpenAI will have to buy from Oracle computing capacity for $300 billion. This contract will largely depend on the projected revenue of Oracle, wrote in September last year The Wall Street Journal, noting, however, that the contract amount is many times higher than the revenue of the owner of ChatGPT. Against this background, the market was concerned about the formation of a bubble in the field of AI and doubts about OpenAI's ability to fulfill its obligations.

However, analyst DA Davidson is confident: after the update of the chatbot model OpenAI will return to the status of Google's main competitor and, having a new capital reserve, will be able to fulfill its obligations, including to Oracle. According to Luria, the market "went down excessively": concerns about OpenAI pressured not only Oracle's stock, but also the securities of Nvidia and Microsoft, the analyst pointed out. But now OpenAI, the expert noted, "already has up to $40 billion in cash, and by the end of the quarter, the company can attract up to $100 billion more," which, in his opinion, should support the financing of data centers that Oracle is building for the AI developer.

"Right now, the market is attributing negative value to the relationship with OpenAI. We believe that [OpenAI's] capital raising will be the catalyst for [the company's partners'] stock outperformance," Luria said.

Oracle shares jumped 9% in trading on Feb. 9; they have gone negative by more than 20% over the past month.

In addition, analyst DA Davidson pointed to the stability of Oracle's core software business. Luria noted that "software is not dead" and developers "will not be forced out of the market by so-called vibe coding" (automated AI programming).

He estimates that the company's core license and enterprise software business alone justifies Oracle's valuation at "18x earnings," while the company's Cloud Infrastructure business now represents "pure growth potential," Luria believes.

DA Davidson also pointed out that in January, U.S. and Chinese regulators approved the sale of TikTok's U.S. division to a consortium led by Oracle, Silver Lake and MGX, which also serves as a source of potential profit for the company.

Pressuring the company for years to come, leaving Oracle in a "vulnerable position" will be its debt load (approximately $130 billion of debt in 2025) and $248 billion of operating lease obligations, mostly related to data center and cloud capacity, the analyst pointed out.

Market concerns about the company's debt load were also overlaid by the December release of the company's quarterly report, in which Oracle reported weaker-than-expected revenue and free cash flow. And during a conference call with investors, Oracle's new CFO Doug Kering said the company's capex for fiscal 2026 will be $50 billion - 43% more than the company had planned in September and double the level of a year ago.

On February 9, Bernstein lowered its target price on Oracle shares from $339 to $313, maintaining a buy recommendation (Outperform rating). His target implies 119% growth of quotations relative to the closing price on February 6.

Of the 42 analysts covering the company's stock, most - 30 - advise buying it, 10 recommend holding it in a portfolio and only two recommend selling it.

This article was AI-translated and verified by a human editor