Oracle Corporation (NYSE:ORCL) is one of the AI Stocks on the Market’s Radar. On December 4, TD Cowen reiterated its “Buy” rating on the stock with a $400.00 price target. The rating affirmation comes ahead of the company’s second-quarter earnings report scheduled for December 10.
TD Cowen believes that there are two key factors that can reverse the recent negative sentiment surrounding the stock. These factors are Oracle Cloud Infrastructure (OCI) growth acceleration and clarification on capital expenditure and financing requirements.
It believes that the Q2 print will likely reset negative investor sentiment and reinforce Oracle’s long-term OCI growth story. Further momentum for growth will continue building in the second half as the Abilene data center comes online. This will address concerns about capacity ramp.
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“2Q should be the first quarter of OCI (Oracle Cloud Infrastructure) growth liftoff, with acceleration building in (second-half) as Abilene comes online. And we expect management to give more color around capex/financing needs, which we think is less demanding than consensus thought.”
Oracle is building a “Stargate” data center in collaboration with OpenAI, with firm noting that industry checks show the project is tracking as projected. This will help bring capacity online for the company to meet a massive backlog in its cloud infrastructure business.
“This gives us confidence in our OCI growth forecast moving from roughly 51-54% over the last 4 quarters to roughly 65% in 2Q, roughly 80% in 3Q, roughly 100% in 4Q,”
Moreover, even though capex/debt leverage remains a key item to watch, TD Cowen views current valuations as being at “trough” levels with “ample room for upside.”
“Capex and financing needs has been the biggest investor question over the last the 2 months, weighing on the stock. A lower than expected capex would also result in lower debt needs, and we think a lot of these concerns can be addressed on the call, including a commitment to staying at investment-grade debt levels.”
Oracle Corporation (NYSE:ORCL) is a database management and cloud service provider.
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