① Deutsche Bank analyst Brad Zelnick believes that despite market concerns over Oracle's excessive debt due to its AI initiatives, the current bearish sentiment could be a “bullish” signal; ② He reiterated a “Buy” rating for Oracle with a target price of $375, citing reliable returns on AI investments and Oracle’s leading position in AI cloud infrastructure deployment.
With the listing of $Oracle (ORCL.US)$ As Oracle ramps up financing for its massive artificial intelligence (AI) initiative, growing concerns about over-leveraging have emerged in the market. However, Deutsche Bank appears to hold a contrasting view.
In a report to clients, the bank's analyst Brad Zelnick stated that amid investor concerns over high expenditures and their impact on the company’s financial health, the prevailing bearish sentiment around Oracle might actually represent a “bullish” signal.
The report noted that assuming Oracle’s projections for fiscal year 2030 exclude any revenue or expenses from OpenAI, “our research indicates that earnings per share (EPS) would decrease by $4 to $17, and free cash flow (FCF) would decline by $10 billion to $31 billion under such a scenario.”
“If these figures are discounted to the present, at the current stock price of approximately $200, the company is hardly receiving any valuation premium from its business relationship with OpenAI,” he added.
Currently, Oracle is aggressively borrowing to finance its “AI investment race”: after raising $18 billion in the U.S. high-grade bond market in September, the company secured another project financing loan of approximately $18 billion in early November to build a data center campus in New Mexico, which Oracle will occupy as a tenant.
According to reports last month, banks also provided an additional $38 billion loan package to fund the construction of hyperscale data center campuses developed by Vantage Data Centers in Texas and Wisconsin. These projects are part of the AI infrastructure plan announced by OpenAI and Oracle in July.
Morgan Stanley also warned that credit default swaps (CDS), a key metric measuring Oracle’s debt risk, reached a three-year high in November. The situation could worsen by 2026 if Oracle fails to alleviate investor concerns about its massive AI spending spree.
However, Zelnick seemed unfazed. He reiterated his “Buy” rating for Oracle with a target price of $375. While acknowledging legitimate investor concerns about debt, he pointed out that there may be “significant flexibility/substitutability” in the company’s liabilities.
He added that if these liabilities ultimately become a burden on Oracle’s finances, earnings per share could drop to approximately $15, and free cash flow might fall to around $26 billion.
Zelnick further explained, "Oracle's current share price, based on the earnings per share forecast for 2026, reflects a high price-to-earnings ratio of 27 times, indicating that the market is reluctant to pay a premium for future growth and instead focuses more on short-term visible performance."
"While we acknowledge the financial and operational risks, our view is that these risks are far outweighed by the substantial opportunities that exist, as OpenAI’s backlog represents reliable return on investment (ROI), with projects continuing to progress as planned, validating Oracle’s leading position in large-scale deployment of AI cloud infrastructure," he added.
Editor/Doris