Wedbush advises buying back Oracle stock on a drawdown. He thinks the market is wrong
The market is fundamentally misinterpreting Oracle's aggressive investment cycle, says Wedbush analyst Dan Ives / Photo: Tada Images / Shutterstock.com
Oracle is confidently moving towards the status of one of the key infrastructure providers for artificial intelligence models, according to Wedbush Securities analyst Dan Ives, and this should support the growth of the company's shares, which have lost more than 12% since the beginning of the year. In trading on April 24, quotations fell by 1.8%.
Wedbush initiated coverage of Oracle with an outperform rating equaling a buy recommendation on the company's securities and set a $225 target price, CNBC writes. This target is 27.6% higher than their value at last close.
"The market fundamentally misinterprets Oracle's aggressive contract-backed investment cycle as speculative risk," Ives wrote in a note to investors. He said the company is "in the early stages of a major transformation," though it is increasing its debt load.
Oracle executives have struck a number of deals with major Silicon Valley technology players. In September, the company agreed to supply OpenAI with $300 billion worth of computing power over five years starting in 2027. It also signed an agreement with Nvidia to accelerate the adoption of enterprise AI solutions by integrating Oracle Cloud Infrastructure with the chipmaker's platform.
Despite the expected cash flows from these contracts, the market fears that Oracle is ramping up its infrastructure investments too aggressively with debt capital, CNBC notes. The company has a $45-50 billion capital raising program underway and has already raised $30 billion through investment grade bonds and mandatory convertible preferred stock. Analyst Wedbush showed no concern about it and called it a "strategic move."
"The negative scenario for Oracle is largely due to its capital expenditures and negative free cash flow," Ives noted. - However, this view is past-oriented and does not reflect the scale of already contracted demand that underpins these investments."
According to MarketWatch, of the 45 analysts tracking Oracle stock, 35 of them advise buying, nine advise holding, and only one recommends selling. The Wall Street consensus price target is $242.6, up 37.6% from the close of trading on April 23.
This article was AI-translated and verified by a human editor
