Oracle (NYSE:ORCL) has underperformed the broader market this year, slipping by over 23.6% since January even as the Nasdaq 100 and S&P 500 have climbed to record highs. This divergence will be in the spotlight this week as investors react to the company’s earnings report.
Oracle to Publish its Earnings on Friday
Larry Ellison’s Oracle has slumped by 56% from its all-time high even as its financial results showed that its business was doing well. The last results revealed that its remaining performance obligations (RPO) jumped by over $85 billion in the quarter to $638 billion.
This RPO growth translated to revenue, which jumped by 19% in the fourth quarter to $19.2 billion, bringing its annual figure to $67.4 billion. Its annual operating income jumped to over $28.9 billion.
The stock has dropped sharply because of the ongoing capital expenditure that has pushed to substantial debt. Most of its capital expenditure are because of its growing role as a big player in the artificial intelligence industry, where it is part of the Project Stargate. It spent $48 billion in capex in the last financial year and plans to spend $70 billion in FY’27, funds that it is raising through equity and debt.
Oracle’s stock has slid sharply amid mounting concerns over its ballooning capital expenditure, which has driven the company deeper into debt. Much of this spending stems from Oracle’s expanding footprint in the artificial intelligence sector, including its role in Project Stargate.
The company spent $48 billion in capex last fiscal year and plans to nearly double that to $70 billion in FY’27, funds it is raising through a mix of equity and debt. Some of its debt is rated a notch above junk status.
Earnings to Show Steady Revenue Growth
The upcoming earnings report will provide more color on its business. This includes its revenue and RPO growth. Benzinga data shows that analysts expect its revenue jumped by 28% to $19 billion in the first quarter of the fiscal year. It now expects that its annual revenue will be $90 billion, followed by $130 billion in the next financial year.
Oracle’s earnings come at a time when its stock has become highly undervalued. Its forward P/E ratio has dropped to 18.7, lower than the sector median of 22.7. This multiple is much lower than other top tech companies like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
Analysts have maintained a bullish outlook for the company. Citigroup recently reiterated its buy rating, while UBS maintained its outperform rating. Bernstein sees the stock rising to $325, while Barclays hiked to $250.
Oracle Stock Will See a Big Move After Earnings
ORCL stock has crawled back in the past few days, moving from the year-to-date low of $114.43 in July to $150.85. It has already moved slightly above the 50-day Exponential Moving Average (EMA).
The stock has also jumped above the crucial resistance level of $133.95, its lowest swing in February and June this year. Therefore, there is a possibility that the stock will jump to $200, up by 33% from the current level.
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