What's Happening?
Oracle's stock has experienced a decline over the past two days, driven by investor concerns about the sustainability of the artificial intelligence trade. The company's shares have fallen 6%, entering correction territory, which is a 10% drop from its peak on September 10. Analyst Alex Haissl from Rothschild & Co. Redburn has initiated coverage of Oracle with a sell rating, citing that the market is overestimating the value of Oracle's contracted cloud revenues. Haissl has set a price target of $175, implying a 43% downside from the previous day's close. The analyst argues that Oracle's role in large-scale deployments is more akin to a financier than a cloud provider, with fixed economics that do not align with investor expectations.
Why It's Important?
The potential drop in Oracle's stock price could have significant implications for investors and the broader technology sector. Oracle's $300 billion deal with OpenAI is not expected to benefit the company as much as anticipated, which could lead to a reassessment of similar AI-related investments. The concerns raised by Haissl highlight the importance of understanding the underlying economics of AI deals, which may not always align with market expectations. This situation serves as a reminder for investors to scrutinize the details of AI-related contracts and their long-term viability.
What's Next?
Investors and analysts will likely pay closer attention to the specifics of Oracle's AI-related deals and their impact on the company's financial performance. The market may see increased volatility as stakeholders reassess the value of AI investments. Oracle's management may need to address these concerns and provide clarity on the expected benefits of their AI partnerships. Additionally, other companies involved in AI trades may face similar scrutiny, prompting a broader evaluation of AI investment strategies.
