Oracle Corporation (ORCL) experienced a notable stock surge of up to 9% on Monday following an upgrade to a Buy rating from DA Davidson analyst Gil Luria, who also maintained a price target of $180 for the shares. Luria’s optimism is largely based on the belief that the regulatory concerns surrounding OpenAI will begin to fade, which could work in Oracle’s favor.
In a report published on Monday, DA Davidson remarked, “We believe that a revamped OpenAI will return to its position as Google’s top challenger and with a fresh stack of capital be able to live up to its obligations this year, including to Oracle.” This perspective addresses lingering concerns that had negatively impacted Oracle’s stock in recent months.
In September, Oracle’s stock price had initially soared due to the announcement of a significant increase in contract backlog, much of which was linked to OpenAI. However, as perceptions shifted and investors worried that OpenAI was lagging behind rivals like Google and Anthropic, Oracle’s stock subsequently plummeted by approximately 50% from its peak. Despite the recent rebound, shares are still down roughly 10% year-to-date.
Luria argues that the market’s negative sentiment towards both Oracle and OpenAI is overblown. “We are now more positive on OpenAI, based on changes in strategy, new frontier models, the pressure on Google’s competitors from its recent ascent, and progress on its fundraising efforts,” he noted. The firm estimates that OpenAI may already possess as much as $40 billion in cash reserves and could potentially raise an additional $100 billion by the end of the quarter, which would assist in funding data centers that Oracle is constructing for OpenAI.
Additionally, DA Davidson highlighted that the more recent downturn in Oracle’s stock can be attributed to a general decline in investor sentiment towards software stocks. However, they believe this skepticism is unwarranted. “We believe companies will continue to pay for Oracle’s products and that they will not be vibe coded away,” the firm stated.
Furthermore, Oracle stands to benefit from a significant $9 billion upside associated with its recently secured deal to host TikTok’s U.S. operations, a milestone achieved after protracted legal challenges. This potential revenue stream adds to the optimism surrounding Oracle’s future prospects. Overall, the data suggests a cautious yet hopeful outlook for Oracle as it navigates the evolving landscape of AI and enterprise technology.