Oracle Inc (NYSE: ORCL) inched up another 2.0% to print a new all-time high on Thursday after announcing a landmark cloud infrastructure agreement with OpenAI.
In a press release this morning, the multinational said OpenAI has agreed to lease 4.5 gigawatts of US data centre power from it as part of its $500 billion Stargate initiative.
Investors cheered the disclosure today since this unprecedented commitment could generate more than $30 billion in annual revenue for ORCL, starting in fiscal 2028.
Including today’s gain, Oracle stock is up roughly 90% versus its recent low, leaving investors wondering if now is a good time to take at least some profits off the table.
Oracle stock may be pricing in a lot of good news
OpenAI’s commitment marks a pivotal moment in Oracle’s ongoing transformation from legacy software provider to a major player in AI infrastructure.
Still, recent notes from some analysts, while positive on the surface, suggest investors should practice caution in owning ORCL shares at current levels.
Bernstein experts, for example, reiterated Oracle at “outperform” this morning but refrained from raising their price target from $225, about 4.0% below the company’s current stock price.
What it implies is that the investment firm believes much of the upside from the OpenAI deal may already be baked into the Oracle stock at current levels.
Bernstein acknowledged Oracle’s strategic positioning in its latest report, noting exciting growth in its multi-cloud database business, but stopped short of revising its financial model, citing the need for further analysis.
ORCL shares’ valuation is getting stretched
Despite continued momentum and positive developments like the OpenAI agreement revealed this morning, investors should note that Oracle is starting to look a bit stretched from a valuation standpoint.
At the time of writing, ORCL stock is going for a forward price-to-earnings multiple of about 42, which trumps the multiple on the likes of some AI stocks, even including Nvidia, which is trading at about 38 only.
The premium on Oracle suggests it must execute exceptionally to justify its valuation.
Any signs of slowing cloud growth, margin compression, or capex overruns could prompt a swift re-evaluation by the market.
Simply put, Oracle’s Stargate win is undeniably a milestone, but investors must weigh the valuation risks before chasing further upside.
What’s also worth noting is that Bernstein is not the only Wall Street shop that has a price target set below ORCL’s current price.
While the consensus rating on the tech stock remains at “overweight”, the mean target of about $220 indicates potential downside of more than 5.0% from here.
Even a Street-high target of $250 indicates significantly less than 10% upside in Oracle stock.
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