(Bloomberg) — Oracle Corp. (ORCL) investors find themselves at a pivotal crossroads. Either heed the warning from a growing list of indicators that suggest the stock has run up too far, too fast — or continue to chase another rally that’s been supercharged by lofty artificial intelligence expectations.
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Shares of the software maker have soared 75% from April’s low, including their best two-day gain since 2001 after its earnings report last week showed AI-fueled revenue growth is gaining steam. However, that’s left the stock trading at it most overbought level in 25 years and at its steepest valuation in more than two decades. And there are signs investors may already be balking.
Oracle shares fell nearly 1% in premarket trading Tuesday as the Israel-Iran conflict drags on. That follows a nearly 2% decline on Monday, a day that saw the broader Nasdaq 100 Index rally 1.4%.
Last week’s $116 billion rally has shifted the focus to Oracle’s execution, according to Dan Morgan, senior portfolio manager at Synovus Trust. Its growth opportunity from AI reminds Morgan of Microsoft Corp.’s push into cloud computing in the last decade or even Nvidia Corp.’s data center business in 2023.
“That could end up being too optimistic, but I think Oracle is in its teenager phase, not yet mature,” Morgan said. “We could maybe look back on this quarter as the moment we all realized how much more there is to come.”
Oracle is best known for its database software but has been investing aggressively in its cloud-computing business. That spending appears to be paying off as the company predicted “dramatically higher” revenue growth for its upcoming fiscal year amid strong demand for AI-related services.
Analysts expect that growth rate to be about 16%, up from 8.4% in fiscal 2025, which ended last month, according to data compiled by Bloomberg. Net income, meanwhile, is expected to rise 15% in fiscal 2026, and expansion in both metrics is projected to accelerate in fiscal 2027.
While Oracle’s market share within cloud computing remains below that of bigger players like Amazon.com Inc. (AMZN), Microsoft (MSFT), and Alphabet Inc. (GOOG, GOOGL), the results were the latest example of the company’s growing strength in AI. Earlier this year, it entered into a joint venture to provide OpenAI (OPAI.PVT) with computing power.
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