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Oracle (ORCL) shares fell 28% in the past month as AI infrastructure fears triggered a 40% peak-to-trough correction.
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Oracle holds a colossal cloud contract with OpenAI and stands to benefit directly from OpenAI’s growth.
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Deutsche Bank highlights Oracle’s very real opportunity while acknowledging financial and operational risks from heavy debt.
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It’s been yet another awful month for shares of the once-hyped AI infrastructure firm Oracle (NYSE:ORCL), which are down 28% in the past month after a peak-to-trough correction of 40%. With much of the latest AI dip arising from fears of what could go wrong if the heavier AI spenders don’t get the return they’re hoping for, it’s not a mystery to see Oracle stock leading the charge lower. A historic implosion followed a historic single-day surge. But such a quick correction shouldn’t come as a surprise, especially when you consider that volatility can hit both ways.
Though the future is cloudy for the aggressive AI infrastructure firm, I think it’s unfair to ditch the stock just because it’s leveraging up to seize a potential generational opportunity. If the AI boom really does lead to some form of superintelligence that sparks the rise of a digital labor force, and with that, a mass displacement of white-collar workers, the smartest move may very well be to be as aggressive as possible.
Of course, we’ll never really know if “flooring it” is the best possible move for Oracle until a few years down the road. If monetization never lives up to expectations, it could be quite the doozy for the firm as the weight of its debt becomes heavier. Just how likely is the bear case, though? It’s tough to say. I’d argue that a bull case might be likelier, especially if you’re in the belief that OpenAI is the horse to bet on in the AI model race.
Sure, overexposure to any single client may be a perceived negative by investors, but what if that one client ends up as the winning horse that passes the AGI (artificial general intelligence) finish line?
Though OpenAI has lost some of its luster in the past week, thanks in part to the impressive launch of the latest and greatest Google Gemini 3.0, one has to think that Sam Altman and company are hard at work readying to respond with a new model that’s just as big. With the GPT-5 fumble, I do think that OpenAI will take its time to ensure its next big launch is a hit.
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Either way, the AI race is about to get more intense, and while Gemini may be pulling ahead in the model race, it’s a mistake to count out OpenAI and ChatGPT, especially since it’s hard to tell how the firm will respond. Leap-frogging in the AI race is quite common, and until OpenAI falls flat, I’m more inclined to think that more exposure to OpenAI might be a good thing, considering all the growth. Who knows? Perhaps Gemini and ChatGPT could both be winners when all is said and done, and the two AI innovators look to stay well ahead of their Chinese rivals.
With a colossal cloud contract with OpenAI, Oracle stands to benefit as Altman’s firm does. Of course, like Oracle, OpenAI has a significant amount of debt. And while all this debt can scare investors away from AI heavy hitters, I do think that the believers in the AI revolution might wish to spread their bets more broadly.
Even if you think Google and Gemini won’t give up their lead again, I think it’s also prudent to place bets on the firms tied to OpenAI’s fate as well, just in case the two AI leaders look to take different pathways. Either way, betting on the entire AI stack might be a good move, from the infrastructure layer (think Oracle) to model building, all the way up to the application layer.
With Deutsche Bank’s Brad Zelnick shining a light on the “very real opportunity” while also acknowledging “financial and operational risks” involved with the name, I’m inclined to view Oracle as a potentially big winner that investors might be severely discounting. The stakes may be high, but Oracle plays its cards right (and I think it has), the rewards might have the potential to be outsized.
In short, if there’s no AI bubble and OpenAI isn’t ready to wave the white flag after the Gemini 3.0 release (it most definitely won’t), Oracle may very well be on sale right now.
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