Oracle (ORCL) Stock: Morgan Stanley Cuts Price Target 30% on AI Infrastructure Concerns

TLDR

• Morgan Stanley cut Oracle’s price target 30% from $320 to $213, citing concerns that AI infrastructure buildout will pressure earnings per share targets
• The investment bank warns Oracle’s GPU-as-a-Service expansion will create higher funding needs that aren’t reflected in credit markets
• Oracle’s debt has grown from $71 billion to $105 billion over five years as it transforms into an AI cloud infrastructure provider
• Guggenheim maintains a Buy rating with $400 price target, calling Oracle a “decade stock” despite near-term challenges
• Wall Street analysts give Oracle a Strong Buy rating with average price target of $302.41, implying 70% upside potential

Morgan Stanley dropped its price target on Oracle by 30% to $213 from $320 on Friday. The move sent shares lower in afternoon trading as investors digested the downgrade.

Oracle Corporation, ORCL

Analyst Keith Weiss maintained his Hold rating on the stock. His new target implies about 17% upside from current levels. The $213 price point sits well below where most Wall Street analysts see the stock heading.

Weiss pointed to Oracle’s AI infrastructure push as the main concern. He argues the buildout will require much more financing than markets currently expect. This could push earnings per share below company targets.

The analyst’s worry centers on Oracle’s GPU-as-a-Service business. While the revenue opportunity looks large, the costs to build it out may hurt near-term profitability. Morgan Stanley’s calculations suggest credit markets aren’t fully pricing in Oracle’s higher funding needs.

Oracle has been on a borrowing spree. The company’s debt profile has ballooned from around $71 billion five years ago to roughly $105 billion today. That expansion fuels Oracle’s transformation into a major AI cloud infrastructure player.

Debt Concerns Mount

The company recently sold $18 billion in bonds. That sale has turned into a legal headache. Bondholders filed a class action lawsuit claiming Oracle didn’t disclose it would need to sell more debt to expand AI infrastructure.

Morgan Stanley recommended a credit strategy reflecting these concerns. The bank told clients to dump Oracle’s benchmark bonds. Instead, they should buy credit default swaps on Oracle’s debt as insurance.

Oracle currently trades at $173.80. The stock has fallen 26% over the past six months. The company maintains a debt-to-equity ratio of 4.4, which analysts consider quite high.

Guggenheim Takes Opposite View

Not everyone shares Morgan Stanley’s caution. Guggenheim analyst John Difucci reaffirmed his Buy rating earlier this week. His price target sits at $400, implying 123% upside potential.

Difucci calls Oracle a “decade stock.” He believes the company will eventually deliver exponential EPS growth rates. His view asks investors to look past near-term funding pressures.

The split between Morgan Stanley and Guggenheim shows how divided Wall Street remains on Oracle’s AI bet. One sees a cash crunch coming. The other sees a long-term winner.

Oracle has posted 11.07% revenue growth over the last twelve months. Analysts expect the company to remain profitable this year. The company’s financial health score gets rated as “fair” by some analysts.

Wall Street consensus leans bullish overall. Oracle holds a Strong Buy rating based on 24 Buy ratings and eight Hold ratings from 32 analysts. The average price target of $302.41 suggests 70% upside from current levels.

Morgan Stanley sees Oracle’s current price as reflecting a “balanced risk/reward” profile. The bank believes concerns about funding needs are priced into the stock. However, they don’t think credit markets have caught up yet.

China and the United States approved a deal this week for ByteDance to sell TikTok’s US operations to investors led by Oracle and Silverlake. The transaction is expected to close soon.

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