Shares surged after the company revealed a massive agreement reportedly worth up to $300 billion to supply computing capacity to OpenAI. But the excitement didn’t last.
Over the past three months, Oracle stock has fallen by over a third, forcing investors to ask a hard question, did the market overreact on the way up, or has it now swung too far in the other direction?
Where Oracle Stands Today
After the pullback, Oracle trades at roughly 36 times trailing earnings, 9 times sales, and nearly 87 times operating cash flow. That is still a premium valuation by most measures, yet Wall Street remains optimistic. Analyst price targets range widely to as high as $400.
The initial enthusiasm around Oracle was easy to understand. Management expects cloud revenue could reach close to $150 billion annually by the early 2030s, more than double the company’s total revenue today.
Oracle’s remaining performance obligations now sit near $455 billion, with OpenAI accounting for a significant portion.
But investors quickly began to focus on the risks. OpenAI’s financial profile raised eyebrows.
At the time the deal was announced, OpenAI was reportedly generating around $12 billion in annual recurring revenue while having raised roughly $60 billion in total funding. Losses remain substantial, and skeptics question whether even rapid growth will be enough for OpenAI to meet commitments of this scale.
There is also the issue of what Oracle must spend to make the deal work. Capital expenditures are expected to climb toward $80 billion before the decade ends.
Oracle already carries close to $130 billion in long-term debt, and these investments are likely to result in several years of negative free cash flow. That combination of high leverage and heavy spending naturally makes investors uneasy.
Bigger Questions About AI Infrastructure
Oracle has also become a focal point for broader concerns about an AI investment bubble. The company is deploying massive amounts of capital today in exchange for future revenue that is heavily tied to a single high-risk customer.
If OpenAI stumbles, or if AI demand does not live up to current expectations, Oracle and other infrastructure providers could face sharp repricing.
Another worry is technological obsolescence. Data centers built today may have shorter useful lives than expected as GPU technology advances rapidly and maintenance costs remain high. That risk is not unique to Oracle, but it does complicate the long-term return profile of these investments.
So, Is Oracle Undervalued?
At this point, Oracle’s valuation largely hinges on OpenAI’s ability to pay. Management has been confident, pushing back on reports of construction delays and insisting the deal remains on track. Oracle also says it is comfortable with OpenAI’s financial position.
Still, the risks are hard to ignore. Oracle may need to take on even more debt to support a customer whose spending ambitions could exceed its financial capacity. And if OpenAI cannot follow through, the economics of Oracle’s new infrastructure become far less attractive.
Ultimately, Oracle’s recent selloff looks less like a collapse in fundamentals and more like a sharp reset in expectations. The stock may now be modestly undervalued, but the real outcome will depend on whether OpenAI, possibly through a future IPO, can support the scale of its ambitions.