Oracle Inc. (NYSE: ORCL), which announced a groundbreaking cloud infrastructure deal with OpenAI on Thursday, climbed another 2.0% to a new record high.
The multinational announced in a morning press release that OpenAI had agreed to rent 4.5 gigawatts from them as part of the $500 billion Stargate Initiative.
ORCL’s unprecedented pledge could bring in more than $30 Billion in revenue annually starting fiscal year 2028.
Oracle’s stock has gained roughly 90% since its low. Investors are wondering whether it is time to cash in on some of the gains.
Oracle Stock may have priced in many good things
OpenAI’s engagement marks an important moment in Oracle’s transformation as it moves from a legacy software company to one that is a leader in AI infrastructure.
Despite the positive outlook, some recent analyst notes suggest that investors are best advised to exercise caution when purchasing ORCL at its current price.
Oracle, for instance, was rated “outperform by Bernstein analysts this morning, but they did not raise their target price from $225 – about 4% below current Oracle stock value.
The investment firm is implying that Oracle’s stock may be already incorporated with a large portion of the potential upside resulting from the OpenAI transaction.
Bernstein’s latest report acknowledged Oracle’s strategic position, and noted the exciting growth of its multi-cloud databases business. However, it did not revise its financial model citing a need for more analysis.
ORCL shares’ valuation is getting stretched
Investors should be aware that Oracle’s valuation is beginning to stretch despite the company’s continued growth and recent positive developments, such as the OpenAI deal announced this morning.
ORCL is currently trading for an average forward multiple of 42. This is higher than the price to earnings multiples on some AI stocks. Even Nvidia is only at 38.
Oracle’s premium suggests that it has to perform exceptionally well in order for its price to be justified.
Markets may react quickly to signs such as margin compression or overruns in capex.
Oracle’s Stargate victory is undeniably an important milestone. However, investors should weigh valuation risks prior to chasing more upside.
It’s worth noting that Bernstein’s price target isn’t the only Wall Street firm that’s set lower than ORCL’s present price.
The consensus rating for the stock is “overweight”, but the average target price of $220 suggests that the stock could fall more than 5.0%.
Oracle’s stock is unlikely to gain more than 10% even if the Street target was $250.
Oracle Stock at Record High: Time to Take Profits or Let it Run? The post Oracle stock at record high: time to take profits or let it run? appeared first on The ICD
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