TLDR
- Morgan Stanley reduced Oracle’s price target 30% to $213 from $320, citing GPU-as-a-Service buildout pressures on earnings
- Oracle faces lawsuit from bondholders over $18 billion bond sale disclosure issues related to AI infrastructure funding needs
- Company’s total debt expanded from $71 billion to $105 billion over past five years to finance AI cloud transformation
- Guggenheim maintains Buy rating with $400 target, believing Oracle will deliver exponential growth over next decade
- Wall Street consensus remains Strong Buy with 24 Buy ratings and average $302.41 target suggesting 70% upside
Morgan Stanley delivered unwelcome news to Oracle shareholders Friday. The bank dropped its price target to $213 from $320, a 30% haircut that reflects growing concerns about AI spending.
Keith Weiss kept his Hold rating but questioned Oracle’s ability to meet financial targets. The GPU-as-a-Service business requires heavy capital investment. Weiss thinks this spending will drag earnings per share below company projections.
Oracle trades at $173.80 after a 26% decline over six months. The new $213 target implies roughly 17% upside. That’s well short of what bullish analysts see for the stock.
The fundamental concern revolves around funding needs. Oracle’s AI infrastructure expansion demands billions in capital. Morgan Stanley’s analysis suggests credit markets underestimate the company’s leverage requirements going forward.
Debt levels tell the story of Oracle’s transformation. Total borrowing climbed from approximately $71 billion five years ago to around $105 billion today. The company now operates with a debt-to-equity ratio of 4.4.
Bondholder Lawsuit Emerges
Legal troubles compound Oracle’s challenges. Bondholders who bought into the recent $18 billion bond offering filed a class action lawsuit. The complaint alleges Oracle withheld information about needing additional debt sales to fund AI infrastructure.
The lawsuit raises transparency questions. Investors want clarity on total funding requirements. The bond sale disclosure gap has damaged trust with creditors.
Morgan Stanley took action beyond the price target cut. The firm told clients to exit Oracle’s benchmark bonds. They recommend purchasing credit default swaps as insurance against potential default scenarios.
This strategy reflects a disconnect in markets. Stock prices seem to factor in funding worries. Credit spreads haven’t adjusted to reflect higher leverage and default risks according to Morgan Stanley’s view.
Bullish Analyst Holds Ground
Guggenheim’s John Difucci maintains a starkly different perspective. He reaffirmed his Buy rating this week with a $400 price target. His forecast implies 123% upside potential.
Difucci frames Oracle as a long-term hold. He expects the company to generate exponential earnings growth over the coming decade. Near-term funding pressures represent temporary headwinds in his analysis.
The divide between these two analyst views highlights uncertainty around Oracle’s strategy. Morgan Stanley sees excessive debt accumulation. Guggenheim sees smart investment in transformative technology.
Oracle generated 11.07% revenue growth over the trailing twelve months. Profitability should continue this year according to analyst forecasts. Most firms rate Oracle’s financial health as “fair” given current conditions.
Consensus Stays Positive
Wall Street broadly maintains confidence in Oracle despite Morgan Stanley’s warning. The stock holds a Strong Buy consensus rating. This reflects 24 Buy recommendations and eight Hold ratings from 32 analysts surveyed over three months.
Average analyst price targets across Wall Street reach $302.41. This consensus view implies about 70% upside from current prices. Morgan Stanley’s $213 target ranks among the lowest on the Street.
Oracle notched a regulatory victory this week. US and Chinese authorities approved the TikTok transaction. ByteDance will transfer TikTok’s American operations to investors led by Oracle and Silverlake in a deal closing imminently.
