Oracle (NASDAQ:ORCL) stock enjoyed a massive, unforeseen rally of more than 100% since those ominous lows of September 2022. Indeed, any stock that’s more than doubled from trough to peak can have substantial room to the downside. Oracle’s massive run isn’t just based on hype, though, as the company has a nice seat to the AI revolution (or the fourth industrial revolution, as some call it), and the stock surge has reflected the company’s impressive footing in the AI race.
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That said, even the legendary Larry Ellison has been taking profits of late. Even if you have the utmost confidence in a business and its trajectory, it’s only prudent to do some selling after a historic surge. Despite the recent sales, however, the man still owns 1.15 billion shares, so I don’t think Oracle’s top boss is ready to jump ship. If anything, he’s merely doing what any wise investor should do after a spike — trim the froth off a bit. I am bullish on ORCL in the long term but would prefer a larger pullback before buying.
Oracle Stock Feels the Heat of AI
Oracle’s latest earnings results came courtesy of AI customers. In many ways, it seems like the launch of OpenAI’s ChatGPT opened the floodgates for consumers and businesses to open their wallets wide to get in on the AI trend.
Not to discount Oracle’s impressive AI footing, but the company does face stiff competition from the lines of various big-tech titans that are investing heavily in bringing generative AI tech to the cloud. Indeed, Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) have been the cloud heavyweights that may have caused some to forget about good, old Oracle.
As generative AI hits center stage, Oracle may be able to close the distance on its rivals, provided it plays its AI hand well. The latest quarter suggests customers are buying what Oracle is selling on the AI side. The only question that remains is whether the jolt is a one-off or the start of a trend that could see Oracle gain further ground on its big-tech rivals.
There’s Likely More AI Innovation in the Tank
Oracle’s AI jolt may be short-lived, but don’t count on the company to shy away from further innovations. Just last month, Oracle pulled the curtain on its HR software featuring generative AI. The stock had a modest jump on the news, rising about 0.5% on the day. Though it seems like every software (and even non-software) company has some generative AI twist to embed in existing offerings, I do think Oracle’s AI-enabled software could help the company really reinvent itself.
Prior to Oracle’s AI-driven surge, the company may have been viewed as an “old tech” firm that may have lost its competitive edge, at least compared to the likes of FAANG stocks. AI could change things if they haven’t already, as its software becomes more capable with every AI addition.
Oracle Stock: The Easy Gains Have Already Been Made
There’s no doubt that it’s an exciting time for Oracle, but that’s exactly Ellison has rung the register for the first time in two years. The secret is out already: Oracle is an AI stock, and the easy gains may already be in the books!
Undoubtedly, Ellison himself isn’t an Oracle. He can’t see the future of the stock. It’s hard not to argue that the valuation is becoming stretched at 37.4 times trailing price-to-earnings, well above the five-year historical average of 26.2 times. That’s a huge premium attached to shares. However, some premium is warranted, given the AI upside.
When you stack up Oracle stock against the likes of Microsoft, which also trades at the high end of the historical range (36.1 times trailing price-to-earnings), I don’t view Oracle as a bubble by any stretch. In fact, the most bullish analyst on Wall Street sees ORCL stock hitting $150 per share, much higher than its current price of ~$117.
Though Oracle stock has come in, correcting nearly 10% from its high, investors should be prepared for further volatility as the company now faces heightened somewhat expectations from here.
The takeaway? It may be time to follow Ellison by taking some profits here. Though, I’d not be afraid to be a buyer on a more significant dip.
Is ORCL Stock a Buy, According to Analysts?
Turning to Wall Street, ORCL stock comes in as a Moderate Buy. Out of 25 analyst ratings, there are 13 Buys and 12 Hold recommendations.
The average Oracle stock price target is $128.77, implying upside potential of 9.6%. Analyst price targets range from a low of $105.00 per share to a high of $150.00 per share.
The Bottom Line on ORCL Stock
Oracle stock has become expensive, but that does not mean it can’t become even more expensive if it keeps revealing new AI capabilities. Personally, I’m a fan of Oracle in the AI age. However, I’d rather get in after a larger pullback. When it comes to AI, hype can overshoot or undershoot, and it can be hard to tell what the case is with ORCL stock.
