"Stock of the Decade": which company does Guggenheim advise long-term investors?

Despite the recent decline, investment bank Guggenheim recommends holding Oracle stock in your portfolio for the long term. "We continue to believe that Oracle is the stock of the decade, driven by its tremendous (and profitable) potential in the learning and AI inference space," Guggenheim analyst John DiFucci wrote in a note to clients cited by Yahoo Finance.

The cloud service's stock has fallen about 9% over the past month as investors "digest" the massive capital expenditures and risks associated with customer concentration, as well as the financial backing of the company's AI ambitions, Yahoo Finance writes. Still, the company's stock is up 75% over the past six months and 57% since the beginning of the year.

DiFucci believes Oracle has a technological advantage that differentiates it from hyperscalers: specifically, a clustered architecture (RAC) for AI workloads.

If Oracle rides the wave of demand for AI training and inference (answer generation), it could significantly expand its cloud business in the database and application segment, an area that remains an underpenetrated market, according to the analyst.

The company has begun disclosing five-year revenue, EPS and margin targets. At two recent investor meetings, Oracle CFO Doug Kering outlined the financial structure of the AI expansion, from large contracts such as the OpenAI agreement to Oracle's methods for financing projects with potential commitments in excess of $500 billion.

Kering highlighted three features of the new contracts: they are non-cancelable, are not subject to implementation or scaling milestones, and lock in access to GPUs, power and data center infrastructure at the time of signing. DiFucci noted that Oracle calls such deals "binding from the get-go."

Since many of the contracts are still fresh, the company has not yet decided on the exact financing mechanism for the large-scale expansion. According to Kering, the bulk of the costs will be incurred over the next 12 to 18 months. Various sources are possible, including debt, vendor financing or equity issuance.

At the same time, dependence on such a large client as OpenAI creates risks. Questions also remain about the timing of cash outflows and their impact on margins, the analyst said. DiFucci believes the long-term EPS outlook through fiscal 2030 assumes 28% annualized growth and already includes potential financing costs.

In addition, the company said at analyst day that revenue for its AI data platform could reach $20 billion by 2030, which translates to growth of about 50% per year for five years. If the forecast comes true, this high margin business could significantly boost Oracle's profitability.

At the same time, large-scale investments may slow margin growth in the short term, and the returns from AI training contracts may not show up immediately.

According to MarketWatch, of the 46 analysts tracking the cloud service owner's securities, 32 of them recommend buying, one recommends holding and two recommend selling. The analysts' consensus price target is $351.55 per share of Oracle stock. That's about 36.3% above current levels.

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