We recently published 10 Stocks Moving on Buzzing News as Analyst Issues Strong Warning About AI Valuations. Oracle Corp (NYSE:ORCL) is one of the stocks moving on buzzing news.
Malcolm Ethridge, managing partner at Capital Area Planning Group, said in a recent program on CNBC that he’s trimming his position in Oracle Corp (NYSE:ORCL). The analyst said the company’s Cloud margins are not strong when compared with AWS or Google Cloud. He also shared his concerns about Oracle Corp (NYSE:ORCL) dependence on OpenAI.
“This had a lot more to do with how fast the share price has moved in relation to our clients’ basis in the stock versus the company itself. So I think to Josh’s point, Oracle Corp (NYSE:ORCL) doing a great job of improving the margins of its customers, its core clients. However, the margins Oracle is seeing itself as it leans further and further into this multicloud strategy are significantly lesser, or at least reportedly significantly lesser, than that of an Amazon Web Services or a Google Cloud. And that’s a little bit concerning if you consider how much the share price has moved up from about 150 back in April all the way up past 300 recently on all of these announcements really based on one core client, which is OpenAI. And so OpenAI happens to be $300 billion dollars worth of business for the next five years for Oracle Corp (NYSE:ORCL), and if they happen to miss on any of those metrics, that’s significant. Plus, you have Sam Altman who’s come back to the well multiple times with Microsoft, who is their initial partner in this, and renegotiated terms in one way or another. So if they’re likely to do that to Oracle, those margins that Oracle Corp (NYSE:ORCL) has to play with aren’t very good there.”
Headwaters Capital Management stated the following regarding Oracle Corporation (NYSE:ORCL) in its third quarter 2025 investor letter:
“The catalyst for the September AI trade was Oracle Corporation’s (NYSE:ORCL) announcement of a 5-year contract with OpenAI for $300B (implying annual contract value of $60B) to host the company’s LLMs at Oracle data centers beginning in 2027. While the market has grown desensitized to these large headline numbers, it’s useful to step back and put these figures into context from the perspective of both the magnitude of spending and return on investment. It’s easiest to start with the amount of investment that five companies are collectively spending on AI. The table below outlines CAPEX spending by the five hyperscalers and compares it with the other 495 companies in the S&P 500. In 2026, these five hyperscaler companies are expected to spend $405B of CAPEX, nearly all of this related to AI infrastructure build.
In terms of the economics around this investment, details have emerged from the Oracle-OpenAI announcement that can help investors begin to untangle the economics of these contracts. It’s easiest to unpack this from the perspective of each of the players involved.
Committed to spending $60B annually with Oracle to host the Company’s LLMs. This annual expense represents the Company’s cost of goods sold for running LLMs. OpenAI is on track to generate $13B of revenue in 2025 (Source: Reuters and the Information). So just to cover the cost of operating their LLMs on this single contract, OpenAI needs revenue to grow 4.6x in 2 years, or a +115% CAGR over the next 2 years. This is a single contract for hosting services. OpenAI has numerous other hosting contracts, implying that the company needs revenue to significantly exceed $60B just to cover the company’s total cost of goods sold…” (Click here to read the full text)
While we acknowledge the risk and potential of ORCL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORCL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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