'Whatever you do, you lose': why is Oracle's stock falling ahead of the report?

Shares of corporate software developer Oracle were among the securities most affected by growing investor skepticism about artificial intelligence, Bloomberg writes. The upcoming publication of the company's third-quarter earnings, which is expected after the close of trading in the U.S. on Tuesday, March 10, may not change these sentiments, the agency notes. Oracle continues its transformation from software developer to cloud infrastructure provider, but that strategy is causing controversy on Wall Street because of massive spending, MarketWatch writes.

Since reaching a peak of $310 per share on September 10 last year, by March 10, Oracle securities have fallen in price by 51%, showing the worst dynamics among the issuers of the S&P 500 index for this period, Bloomberg notes. Since the beginning of the year they have lost 22%, being among the 25 weakest securities of the index. The last time Oracle's shares fell by more than 50% was during the dot-com crash, Bloomberg recalls, when it took years to fully recover.

Today - amid concerns about large tech companies' massive spending on artificial intelligence, possible technological shifts, and geopolitical tensions over war in the Middle East - investors may also be looking for a reason to sell stocks, Bloomberg writes.

Despite what analysts expect:

- Oracle will report third-quarter earnings per share growth of about 30% year-over-year and a 20% year-over-year increase in revenue to $16.9 billion.

- And the company's sales in the cloud infrastructure segment could grow 82% year-over-year, according to Bloomberg consensus estimates.

Oracle's securities on the eve of the report's publication at the trading on March 10 were down by more than 1% (at the time of publication they were down by 0.3%). Even strong quarterly results may not support quotes of the company, if investors consider Oracle's plans for capital expenditures too aggressive, notes Bloomberg.

In January of this year, Oracle predicted that its capital spending on cloud services would increase to about $50 billion in fiscal 2026, which ends in May - double what it spent a year earlier. Bloomberg analysts predict that amount could exceed $85 billion by fiscal 2029.

- "If the company continues to spend at this pace, especially amid growing skepticism about AI spending, it will increase questions about its debt load, cash burn and balance sheet strength," said Andersen Capital Management Chief Investment Officer Peter Andersen.

Those costs are already putting pressure on the company's financials, Bloomberg notes. Last quarter, Oracle reported negative free cash flow of nearly $10 billion, the worst in its history. In the upcoming report, free cash flow will also remain negative at about $7.3 billion, according to data compiled by Bloomberg.

But at the same time, Andersen continued, questions will arise for Oracle if the company cuts costs: market participants will be interested in its strategy, as well as its ability to compete with larger players. "It's a situation where whatever you do, you're going to lose," Andersen said.

- "The market is evaluating whether this massive spending and debt load will lead to future growth, and these concerns need to be taken seriously," added Zacks Investment Management client portfolio manager Brian Mulberry. In his opinion, the company's stock will remain attractive as long as demand for artificial intelligence products remains strong.

- "We think the market may be underestimating Oracle's growth potential," Bloomberg quoted Jefferies analyst Brent Till as saying. - We see an attractive situation due to a rare acceleration in growth, a highly profitable core enterprise software business and relatively low long-term risks associated with AI," the analyst said.

- The head of global software research at BNP Paribas, Stefan Slowinski, believes that the upcoming reporting is unlikely to provide definitive answers, but "the mere achievement of a consensus forecast for the third fiscal quarter would be a good first step toward restoring investor confidence in the company's ability to consistently meet expectations," MarketWatch writes. Slowinski maintained a "buy" recommendation on Oracle securities, but lowered his target price for the stock from $290 to $201 apiece. This implies a 32% increase in the company's securities relative to the last closing price.

The average target price on the company's securities for the next 12 months is almost $260, which implies their growth of 71%. According to data available since 2003, this is one of the highest targets in the history of the company, notes Bloomberg. Of the 45 analysts tracking Oracle securities, most - 35 - advise buying them, MarketWatch data show. Nine of them are cautious and recommend to keep them in the portfolio, and only one advises to sell.

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