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Is Oracle (ORCL) Undervalued After AI Cloud Growth Met Cash Flow Concerns?

Simply Wall St · 2d ago

Oracle (ORCL) is under pressure even as its cloud story accelerates. Fresh figures on surging AI infrastructure revenue and a reported US$664b backlog sit alongside rising debt costs and investor concern about weak free cash flow.

Oracle’s recent slide adds context to the debate. The share price has fallen around 8.6% over the past month and is down 29.8% year to date, while the 1 year total shareholder return has declined 54.8%. However, the 3 and 5 year total shareholder returns of 30.9% and 52.3% still point to a longer term holder who has not yet fully given back earlier gains.

Spot 92 AI infrastructure stocks that could benefit from the same AI infrastructure and cloud momentum driving Oracle’s backlog, while facing very different market expectations.

Bulls point to Oracle’s large AI backlog and cloud momentum, while bears focus on negative free cash flow and rising financial risk. Which story does the current valuation actually support?

Most Popular Narrative: 29% Undervalued

According to the most followed narrative on Oracle, the shares look cheap against a fair value estimate of $192.59, compared with the last close at $137.39. This puts real weight behind the argument that the recent selloff has gone too far.

To calculate the intrinsic value of the company, multiple methods are used. Discounted Cash Flows (DCF) intrinsic value is estimated by projecting its free cash flows over the next 10 years and discounting them to present value using the estimated cost of capital. For EPS Growth, the fair value is estimated by projecting the Earnings Per Share CAGR for the next 5 years and then, given its current and historic values of PE, deriving a PE for the 5th year.

See why 94 investors see Oracle as 29% undervalued.

Result: Fair Value of $192.59 (UNDERVALUED)

Still, that 54.8% 1 year total shareholder return decline and concerns around negative free cash flow leave plenty of room for the Oracle narrative to be challenged.

Find out about the key risks to this Oracle narrative.

Next Steps

Uncertain whether Oracle’s recent slide reflects overreaction or real concern, you can move quickly to test that view against the full set of numbers and narratives, including the 4 key rewards and 3 important warning signs.

Looking for more Oracle sized opportunities?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.