Bank of America resets Oracle stock price target

Oracle (ORCL) reported its Q2 earnings on December 10, after market close. The earnings report disappointed investors, and the stock took a tumble on the following day, closing at $198.85, or 10.8% lower. It continued to slide on Friday, Dec. 12, ending the trading session 4.47% lower with a closing price of $189.97.The Friday drop was caused by Broadcom taking a hit after its earnings, which affected other stocks in the AI group, as well as Bloomberg’s report that Oracle has delayed the completion dates for some of the data centers it’s developing for OpenAI to 2028 from 2027.Any delay in completing data centers is a delay in generating revenue, which is why this news was hurting the stock. Oracle responded with a statement: "There have been no delays to any sites required to meet our contractual commitments, and all milestones remain on track.”Here are the Oracle Q2 earnings highlights:Revenue of $16.1 billion, up 14% year over yearDiluted earnings per share (EPS) of $2.10, up 91% YoYNon-GAAP EPS of $2.26, up 54% YoYNet income of $6.1 billion, up 95% YoYRemaining Performance Obligations $523 billion, up 438% YoYShort-term deferred revenues of $9.9 billion“We are now committed to a policy of chip neutrality where we work closely with all our CPU and GPU suppliers," Oracle CTO Larry Ellison stated in the earnings press release. "Of course, we will continue to buy the latest GPUs from NVIDIA, but we need to be prepared and able to deploy whatever chips our customers want to buy."Bank of America analysts Brad Sills and Madeline Brooks updated their opinion on Oracle stock, following the release of the earnings report. Bank of America reiterates buy rating and lowers its Oracle stock price target.Shutterstock Bank of America lowers Oracle stock price targetAnalysts noted that Oracle Cloud Infrastructure (OCI) revenue growth of 69% year over year was only in line with The Street, while capital expenditures of $12 billion were $4 billion ahead of consensus. They said Oracle’s management provided guidance to a $15 billion step-up in capital expenditures to $50 billion for fiscal year 2026 as the company builds out infrastructure to monetize the $523 billion in OCI AI backlog.Sills wrote: “We view the current mismatch of spend versus revenue as an investment curve issue rather than a change in fundamentals.” In his view, the current weakness is that more capital expenditures are needed to support demand, and Oracle is paying the price for the abnormal speed at which investment is required to meet current AI demand trends.Related: Bank of America resets Broadcom stock price targetSills believes that underlying fundamentals are more important: AI demand is growing, large site builds are progressing on schedule, and OCI’s architecture enables the company to serve demand across different platforms and contract types. He also noted that Oracle’s management reiterated that the company still has healthy access to multiple financing channels and remains committed to maintaining investment-grade credit.In a research note shared with TheStreet, Sills reiterated a buy rating for Oracle stock, and lowered the price target from $368 to $300, based on his estimate of the enterprise value-to-sales ratio for calendar year 2027 of 10x, a premium to the large cap software group trading at 8x, which he believes is warranted due to accelerating growth/mounting backlog.Bank of America noted risks to its price objective:Severe downturn in enterprise software spendingCurrency headwindsIssues with the integration of past acquisitionsDatabase competition from IBM, Amazon, and MicrosoftApps competition from SAP, Microsoft, and othersDevelopment of viable open source database and middleware alternativesBearish view on OracleCompared to veteran analyst Stephen Guilfoyle's view, Sills is very optimistic about Oracle. Here is what Guilfoyle wrote for TheStreet Pro:“On the morning of Sept. 10, I wrote to you, 'We are not there yet, but this is turning into an epic opportunity for a short sale. ORCL is fast approaching “Strong Sell” territory.' The shares apexed at $345.72 that day and are trading with a $197 handle as I work on this note. That’s a 42.8% haircut.”He concluded by sharing his opinion on buying ORCL as an investment.Guilfoyle isn’t the only analyst with a bearish take on Oracle.In September, Rothschild & Co. Redburn analyst Alex Haissl initiated coverage of Oracle. Haissl gave ORCL stock a sell rating and a $175 price target.In his appearance on CNBC on December 11, he reiterated his sell rating for Oracle. Haissl thinks that large-scale GPU deployments generate very little value, and that Oracle’s main problem is that the funding is coming increasingly from debt, while Microsoft and Google have sufficient operating cash flow to fund their data centers.Why Oracle stock peaked in September, and what to watch forOracle's stock’s peak price was largely driven by the remaining performance obligations from Q1, which increased further to $523 billion in Q2. The problem is that the Q2 report says short-term deferred revenues were $9.9 billion. The 10-Q form says total deferred revenues are $11.175 billion. Remaining performance obligations per definition include deferred revenues and the future revenue from un-invoiced contracts. But the difference here between RPO and the deferred revenue is more than $500 billion. The un-invoiced contracts are supposed to be uncancelable; however, a major chunk of those future revenues is supposed to come from OpenAI.

More Tech Stocks:Investors hope good news from Nvidia gives the rally more lifePalantir CEO Karp just settled major debateSpotify just solved a major problem for listenersAmazon lawsuit could be a warning to other employersAccording to OpenAI, it has committed to spending more than $300 billion on renting servers from Oracle as a part of the Stargate project, and that is a major piece of Oracle’s remaining performance obligations. It means that if you're betting on Oracle, you are betting on OpenAI. OpenAI is not profitable and does not expect to be cash flow positive until 2030, according to Forbes.Bernstein analyst Mark Moerdler noted this problem in his note following the Q2 earnings report, saying that the $300 billion OpenAI data-center contract gives Oracle "unprecedented single customer revenue exposure," as reported by Reuters.Another significant concern to monitor is Oracle’s growing debt, which, according to The Motley Fool, has increased to $108 billion.To end on a positive note, Sills isn’t the only analyst still bullish on Oracle. Citi analysts reiterated a buy rating, following the earnings report, and lowered their price target on Oracle to $370 from $375.Related: Bank of America resets Nvidia stock forecast after private meeting