Wells Fargo is making a significant investment in Oracle, even as a majority of Wall Street analysts maintain a cautious stance on the company's stock. On Wednesday, Michael Turrin, an analyst at Wells Fargo, initiated coverage of Oracle with an "overweight" rating and set a price target of $280, representing a potential 39% increase from its current trading price.
Oracle's stock has seen a 21% rise year-to-date, but has experienced a significant decline of nearly 29% this current quarter. This downturn is attributed to investors growing impatient with companies perceived as overvalued.
However, Turrin believes Oracle is strategically positioned to benefit from the ongoing AI super-cycle, citing over $500 billion in existing deals as evidence. This assessment is based on concrete partnerships with major clients such as OpenAI, Meta, TikTok, and xAI, which secure Oracle's position in enterprise-scale AI infrastructure. Currently, the stock is trading approximately 42% below its peak, at a valuation of about 25 times its projected earnings for fiscal year 2027.
Oracle Cloud Competes for Market Share While Rivals Stagnate
Michael Turrin predicts that Oracle Cloud Infrastructure will capture 16% of the global market share by 2029, a substantial increase from its current 5% in 2025. If this projection materializes, Oracle would be on par with the third-largest cloud provider, placing it in direct competition with industry giants like Amazon, Microsoft, and Google.
The company currently boasts the largest cloud backlog in the industry, with a base of $455 billion and a pro forma estimate exceeding $500 billion. In comparison, Microsoft's last reported backlog stood at $392 billion.
Turrin also points to an additional upside potential from a $300 billion cloud computing contract and anticipates further growth stemming from Oracle's existing $75 billion commitments to AI lab initiatives. Oracle's stock (ORCL) saw a 2% increase yesterday.
AI Investments Cool Down as Oracle Continues to Secure Business
Beyond Oracle, the broader technology sector is exhibiting signs of weakness. While the S&P 500 is approaching record highs, the rally is not being driven by the usual technology leaders. Companies like Nvidia, Microsoft, and other members of the "Magnificent Seven" are facing pressure. The Information Technology index has fallen by 4.2% since October 28, with some prominent tech stocks negatively impacting the overall sector performance.
In contrast, companies such as Eli Lilly, Cardinal Health, and Biogen are currently leading market gains. This indicates a clear investor desire to participate in the market, though not necessarily within the technology sector.
These trends emerge amidst growing concerns about the actual profitability of significant AI investments. The technology sector continues to carry a forward price-to-earnings ratio of 28, one of the highest readings observed in the past two decades.
Lori Calvasina of RBC Capital Markets has noted that institutional clients are expressing significant worries about over-concentration in a limited number of stocks, suggesting a potential rotation away from technology may be developing.
However, Calvasina also observed that companies continuing to invest heavily in data center infrastructure are experiencing robust earnings growth. This suggests that any rotation away from technology might be limited unless other sectors begin to outperform significantly in terms of profitability.