Morgan Stanley has adjusted its price target for Oracle Corporation (NYSE: ORCL) downward to $213.00, from a previous valuation of $320.00, while retaining an Equalweight rating on the shares. Presently, Oracle trades at approximately $173.80. Analyst price forecasts vary broadly between $155 and $400, highlighting differing perspectives on the company’s prospects. The stock’s price has exhibited marked volatility, declining about 26% over the preceding six-month period.
The investment bank’s reassessment focuses significantly on Oracle’s GPU-as-a-Service (GPUaaS) initiative. While this segment represents a large potential revenue stream, Morgan Stanley analysts express concern that the infrastructure and related expenditures required for this expansion are likely to suppress earnings per share below expected targets. Nonetheless, Oracle continues to demonstrate robust revenue progression, with growth of 11.07% recorded over the past year, and prevailing analyst consensus anticipates the company to maintain profitability through the current fiscal year.
The firm highlighted that scaling the GPUaaS infrastructure will necessitate substantially increased capital, leading to "materially higher funding needs". This dynamic poses a challenge to Oracle’s ability to meet its fiscal objectives, especially given its existing leverage. According to investing data, Oracle holds a debt-to-equity ratio of 4.4, a level considered relatively elevated, underpinning concerns about financial flexibility. InvestingPro’s evaluation categorizes Oracle’s financial health as "FAIR".
Morgan Stanley’s analysis suggests that these factors are already reflected in Oracle’s prevailing share price, resulting in what is described as a "balanced risk/reward" scenario for investors. From a credit market perspective, Morgan Stanley notes that current credit spreads may not fully capture the heightened risks related to funding pressures and leverage. Consequently, the firm advocates for credit strategies such as purchasing credit default swaps while selling benchmark bonds to hedge against potential credit deterioration.
In parallel to these financial considerations, Oracle is involved in a significant corporate transaction expected to close shortly. Regulatory approvals from both China and the United States have paved the way for ByteDance to divest TikTok’s U.S. operations to a consortium of investors predominantly led by Oracle and Silverlake. This transaction marks an important strategic development with potential ramifications for Oracle’s market positioning and long-term growth strategy.
Contrasting views exist among market analysts: Guggenheim sustains a Buy recommendation on Oracle with a $400 price target, KeyBanc Capital Markets reaffirms an Overweight stance at $300, and Goldman Sachs upgraded Oracle to a Buy rating with a $240 target, citing Oracle’s technological capabilities in AI compute workloads as a key strength.
Oracle also faces legal challenges, including a proposed class action suit filed by bondholders in a Manhattan court. The lawsuit alleges that Oracle failed to adequately disclose the need to issue additional debt to support its expansion of artificial intelligence infrastructure. This legal matter adds complexity to Oracle’s operational and financial outlook during a period of considerable corporate activity and analysis divergence.