Oracle, in my opinion, is the greatest buy in today's market. Let's discuss.
**Valuation:**
PE: 20.8-22x
FWD PE: 15.5-16.5x
MKT Cap: \~368B
Price/Sales: \~5.6
Net Debt: $95-105B
In the context of Oracle, the "valuation" doesn't tell the story on it's own. Instead, let's dive deeper into what is going on.
**Expected Growth:**
Analysts and Oracle have both estimated a \~30% revenue/eps growth CAGR until FY 2030.
For FY 2027, a revenue of \~90B is estimated with a \~32.5% YOY revenue growth. For FY 2028, the expectations are \~130B revenue with \~46% revenue growth. That are solid growth numbers. That means, Oracle, at the moment, is trading at <3x FY 2028 revenue.
**Debt and Risk:**
This is the part most people are stuck on, and the point which is exaggerated. Oracle is expected to raise another $40B in debt/equity offering for FY 2027. However, is this warranted?
If Oracle is building without commitments, the debt could cause a serious problem. However, let's look at what they're saying besides revenue growth numbers.
* Most of the RPO increase in both Q3 and Q4 were large scale AI contracts where the customer prepaid Oracle for the purchase of the GPUs, or the customer bought and supplied the GPUs to Oracle.
* The prepaid and customer supplied hardware portions of our large AI contracts now total $75 billion. This substantially reduces the amount of capital Oracle must raise to build out our AI datacenters.
* Contractual margins maintaining and improving
* Acceleration in customer diversification
* 98% of AI datacenter capacity already contracted
* Remaining Performance Obligations, or RPO, ended the quarter at $638 billion, up 363% USD year-over year and up $85 billion sequentially from the end of Q3.
So, let's summarize:
* They are now focusing on diversification. Even if OAI doesn't meet their commitments, the remaining portion of $300B in RPO which isn't from OpenAI almost is equivalent to Oracle's CURRENT market cap.
* They are not spending wildly on depreciating assets and building without commitments. Now, they are now forcing customers to either pre-pay before they build or the customers will bring their OWN AI-infrastructure (GPUs,CPUs, etc).
This does not look like a company wildly spending. It looks like a company that is spending reasonably and focused on improving their balance sheet.
**What do Analysts Think:**
* WallStreet remains extremely bullish with 0 sell ratings and 28 buy ratings with 3 hold ratings. Average price target is 100%+ current price.
* Guggenheim stated this:
* "Five-star analyst John DiFucci at Guggenheim reiterated his Buy rating on ORCL, pointing to the company’s strong outlook and guidance. He said there is “no apparent good reason” for the post-earnings selloff and reiterated his view that investors should buy the stock “aggressively” at current levels.
* He also argued that concerns around capital spending and margins are only short-term, as Oracle invests heavily in AI infrastructure. He expects free cash flow to improve significantly starting from fiscal 2029.
**Conclusion:**
* Debt is real, but FCF is expected to strongly rebound in the long run. Long ORCL.
**Position:**
\~900 shares @ 135 average