Oracle: A Most Peculiar Dip

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Five months ago, Oracle (ORCL +0.16%) experienced a surge that briefly elevated its founder, Larry Ellison, to a position of such improbable wealth that one began to suspect a dimensional anomaly. (It’s always the dimensions, isn’t it? They’re terribly untidy.) The market capitalization approached the trillion-dollar mark, a figure that, when contemplated for more than approximately 3.7 seconds, induces a mild existential dread. This, naturally, prompted a reassessment of the entire concept of numerical value, but that’s another story.

Last August, in a fit of optimistic categorization, I proposed the “Ten Titans” as an expansion of the “Magnificent Seven.” (The Magnificent Seven, one notes, sounds suspiciously like a 1960s Western, which raises the question of whether stock market analysts secretly yearn for a life of dusty saloons and dramatic showdowns. Probably.) This broadening was intended to encompass companies like Broadcom, Netflix, and, of course, Oracle. The idea, in essence, was to acknowledge that the universe contains more than seven reasonably successful entities. A rather radical notion, really.

However, my prediction of Oracle’s continued ascent into the stratosphere appears to have encountered a slight…deviation from the projected trajectory. The stock is currently down 27% year-to-date and a rather alarming 52% from its peak. This is not, strictly speaking, a catastrophe, but it does suggest that the laws of physics – or, more likely, market sentiment – are behaving in an unexpectedly capricious manner.

Let’s examine the reasons for this downturn, the challenges to the investment thesis, and whether Oracle, at its current price, is worth a cautious dip. (Caution is always advisable when dealing with large sums of money, or anything that might spontaneously combust.)

Oracle’s Encounter with the Software Slump

Oracle is heavily investing in Oracle Cloud Infrastructure (OCI), constructing data centers to accommodate the burgeoning demand driven by Artificial Intelligence. (AI, naturally, is the new deity. We offer it data, and it occasionally returns coherent sentences.) Cloud services now constitute 50% of revenue, a significant proportion, but the company’s database and data management software remains its core, cash-generating engine.

The software industry as a whole is currently experiencing a bout of nervousness, fueled by fears that AI will render established workflows obsolete. (Which is, let’s face it, entirely possible. We’re essentially teaching machines to do our jobs, then expressing surprise when they start asking for a raise.) Oracle is not alone in this predicament. Microsoft, a member of the aforementioned Magnificent Seven, is currently the worst performer in that particular grouping. Even ServiceNow, once a Wall Street darling, has lost a third of its value this year. It seems the market is collectively holding its breath.

There’s a plausible argument to be made that the sell-off has gone too far. But, in the meantime, Oracle may continue to be dragged down by the general malaise afflicting the industry. (Like a particularly stubborn barnacle.)

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The OpenAI Conundrum

Oracle’s stock reached an all-time high following its first-quarter fiscal 2026 earnings report, largely due to an ambitious plan to increase OCI revenue from approximately $10 billion in fiscal 2025 to a staggering $144 billion in fiscal 2030. (A figure that, upon closer inspection, appears to involve a significant degree of optimism.) This projection wasn’t conjured from thin air; Oracle reported a 359% increase in remaining performance obligations (RPO) – essentially a backlog of contracts. This figure subsequently ballooned to $523 billion in December. Oracle has secured substantial deals with hyperscalers like Meta Platforms. However, a significant portion of this RPO – approximately $300 billion – is dependent on OpenAI.

Investors are increasingly concerned about OpenAI’s ability to fund its capital-intensive expansion plans. (The sheer scale of computing power required to train these models is, frankly, terrifying.) Similarly, Microsoft experienced a sell-off after revealing that 45% of its $625 billion in RPO is also tied to OpenAI. (It seems a lot of people are putting their faith in a single, very powerful algorithm.)

Anthropic’s Claude model presents a direct challenge to OpenAI’s dominance, leading investors to view Oracle’s RPO with a degree of skepticism. (The market, it seems, has rediscovered the concept of competition.)

Considering a Dip in Oracle

Oracle is currently experiencing a sell-off due to a broader downturn in software stocks and growing concerns about its reliance on OpenAI-related contracts. Unlike many hyperscalers, Oracle is no longer generating positive free cash flow and is relying on debt to fund its expansion. (A strategy that, while not unheard of, does add a certain frisson of excitement.)

The stock currently trades at 26.8 times earnings and 19.4 times forward earnings. This appears, at first glance, to be a relatively cheap price. However, purchasing Oracle requires a firm conviction that its core software business will remain a reliable cash cow, that OpenAI will fulfill its contractual obligations, or that Oracle can redirect data center capacity to alternative customers if OpenAI’s orders fall short of expectations. (A lot of ‘ifs’, really.)

Given these uncertainties, a cautious approach is advisable. Only those with a high risk tolerance and a genuine belief in Oracle’s vision should consider adding the stock to their portfolio. (And perhaps a good supply of tea. One always needs tea when contemplating the vagaries of the stock market.)

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2026-02-12 21:52