Analyst advises selling Oracle shares against its AI deals. The stock collapsed by 6%

Shares of Oracle - one of the most popular companies on the market in September - received a rare sell recommendation from an analyst. Rothschild & Co Redburn for the first time assigned a rating to the securities - and immediately predicted their fall by almost 45%. In Rothschild's opinion, the market is putting little realistic optimism into the quotes, overestimating Oracle's revenue from cloud contracts. Rothschild's opinion goes against the consensus of Wall Street, but in trading on September 25, Oracle's securities collapsed by almost 6%.

Rothschild & Co Redburn analyst Alex Heissl initiated coverage of Oracle shares on Sept. 25 with a Sell rating (sell advice) and a $175 target price - that's 40% below the closing price on Sept. 25, Seeking Alpha reports. Heissl believes the market is overvaluing the company's cloud contract revenue, even with Oracle's involvement in Stargate with OpenAI, a massive AI infrastructure initiative.

The analyst believes that Oracle's model in the cloud business differs sharply from the approach of other major industry players like Amazon, Microsoft and Google. The latter have learned to earn "like software firms", loading their data centers with different clients and developing new services in parallel - from ready-made applications to platforms for developers. In addition, they focus not only on capital expenditures in infrastructure, but also on investments in research and development.

At the same time, Oracle's cloud projects are large-scale "single-client" deployments, as in the case of OpenAI, Heissl writes. That makes Oracle more like a financier than a classic cloud provider. Even if these contracts are profitable, Oracle's business model lacks scalability and flexibility, the analyst emphasized. As a result, the main benefits from increasing utilization and moving to more expensive service tiers go to OpenAI, not Oracle.

In addition, Oracle's revenue growth outside of its infrastructure cloud services segment remains weak, Rothschild emphasized. In his opinion, over time, this will shift market attention from high-profile metrics to fundamental economics and create "significant downside risks" for Oracle's stock.

At the end of trading on September 25, Oracle shares collapsed by 5.5% to $291.3. That became their lowest closing price since Sept. 12, the third consecutive trading session to end in the negative. Investors are wary of overheated stock valuations and possible risky "closed-loop" relationships in the AI industry after recent deals, CNBC noted.

At Thursday's close, Oracle had already lost more than 10% from its recent high. However, since the beginning of the year, the market value of the company remains in the plus 75%. For comparison: the main U.S. stock index S&P 500 for the same period added about 12%.

"Oracle stock has seen tremendous gains. Some correction and weakening is probably warranted given how quickly and dramatically market capitalization has soared," Globalt Investments senior portfolio manager Keith Buchanan told CNBC. He paralleled Rothschild in noting "some skepticism" about Oracle's rapid cloud infrastructure growth projections: order volumes are impressive, but if they are focused on just a few customers and a limited number of markets, that carries risk, he added.

Contrary to Rothschild's view, about 70% of analysts tracking Oracle stock recommend investors buy it (Buy and Overweight ratings), according to MarketWatch. The rest are neutral with a Hold rating. Wall Street's consensus target price of $341.3 per share suggests the company's market value is up another nearly 17% from the last close.

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