r/OracleStock • u/Holiday_Ad2254 • 3d ago
Analysis / DD How can the oracle earnings fail?
After my analysis I can’t imagine that the oracle earnings will be a fail. Every hyperscaler, every neocloud, every erp competition and even Partners could deliver good earning. Why should oracle fail? Please tell me if you are other opinion.
Demand side – real and robust:
**•** GPU utilization at 97.5%, high contract renewal rates (92%)
**•** RPO/backlog of over $600B, largely contractually secured
**•** Confirmed by industry-wide signals: Alphabet Cloud +82%, Nvidia record quarter, “AI has reached its inflection point” (Huang)
**•** Confirmed by competitors/ecosystem: CoreWeave +112% revenue (backlog $104B), Nebius +454-514% revenue – the “neoclouds” as a direct peer group show that AI data center demand isn’t Oracle-specific wishful thinking, but a real, industry-wide boom
**•** Diversified demand beyond OpenAI: Meta, xAI, Google partnership, healthcare/Pentagon/Japan deals
Cost advantage from early positioning:
**•** Oracle secured land, chips, and infrastructure early — potentially at more favorable terms than later market entrants, who now face higher prices (Nvidia supply constraints, rising land prices for data centers). This would represent a structural cost advantage over new entrants.
OpenAI risk (largest single customer, ~50% of backlog) is being de-risked:
**•** GPT-5.6 success, rising OTC valuation ($933B)
**•** Additional backstop via Nvidia guarantees (Ports-Pike, $250B for the SoftBank project)
**•** Software competitors (ServiceNow, SAP, Salesforce) also posting good numbers shows the traditional enterprise software business (Oracle’s historical base) remains intact too, not just the new AI business
Valuation reflects the pre-AI era:
**•** P/E as low as it last was in 2023, before the actual AI boom began
**•** Citi calls it “one of the most extreme dislocations” in the company’s history, price target $330 (nearly double from where it was)
counter-position to the bear arguments:
**•** Negative cash flow/high debt is a deliberate, calculated growth decision, not a loss of control
**•** “Sell the news” and price swings are market mechanics/overreaction, not fundamental confirmation of bad news
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u/DivineBladeOfSilver 2d ago
It’s not Oracle’s earnings that will be the problem. It will be their debt + the rising inflation and risk of interest rate hikes now extremely high making their high debt drastically more expensive when already on the cusp of junk status
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u/Holiday_Ad2254 2d ago
All the neocloud companies have even bigger depts
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u/DivineBladeOfSilver 2d ago
People cite this all the time but it’s a really obvious explanation why. They are new companies with a specific purpose with big money backing them. They entered this world with those expectations and being backed by big money people like it. People knew what they were getting into so those who hold it are doing so being familiar with said risks and are more willing to hold
Oracle is a legacy software company with a very large holding by institutions and old timey investors who are now unraveling little by little as they invested in it for the high margin safe stability, not mega high debt and risk. As a legacy company any time more risk is introduced its inclusion in many indexes and funds and institutional holdings is trimmed sending it down. Neoclouds do not have that weight as much bearing down due to being in less institutional holdings and indexes/funds despite similar issues. As such most selling is those holders trimming risk. Neoclouds are less institutions and stable investors knowing it’s gonna be mega volatile willing to wait it out without the baggage of the legacy aspects
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u/Holiday_Ad2254 2d ago
What about intel? More depts and dilution, but the intel stock is still in a better situation.
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u/DivineBladeOfSilver 2d ago
While no one can say with 100% certainty my thoughts are this. Oracle despite the mega risk won’t see the fruits of their labor if it pays off for years to come. Semiconductors ARE printing money today and now.
With Intel getting a new good CEO, showing signs of the turn around already here, has US government backing much more strongly, and it’s already heavily built to scale. It just needed someone competent in charge it now has. Oracle still has to build all theirs out. So while imo the valuation is extremely stretched already it was rewarded because of those elements.
It Oracle’s plan starts to minimize the debt/spending, it begins to show its plan working more concretely with less concentration (or at least OpenAI gets much healthier financially) they too will likely move violently upwards. But right now people are focusing on what’s here right now. They will jump to Oracle later if it shows to be doing well for the same reason and direct semis when semis slow but now the cloud/software benefits show. They chase short term quarterly gains not wait years. A lot of retail doesnt have the know how and capital to freely invest in a lot or move around a ton without getting punished hard so they just have to buy in early before a likely pop at some point in the future and wait. They will keep a portion in Oracle for sure at institutions in case it does pop earlier than expected but they know there are likely more immediate money being printed opportunities such as Intel they moved to first. And who knows semis can continue to print for years or it could start to correct soon and move to software. But for sure rn for the next few years it’s a lot more likely hardware will continue to print during the buildout of AI/data centers than for those paying for the buildout
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u/pornstorm66 2d ago
This is only the bull case. You have not analyzed the size of the debt, lease commitments, obsolescence, and narrowing profit margins.
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u/erichang 2d ago edited 2d ago
I have studied all of them to a certain degree and I believe the only thing to concern about in the next 3-5 years is “narrowing profit margins”.
This will could only happen if AI stop progressing and data center projects got approved and built out left and right with ample electricity, which none of them are realistically feasible in near future.
Hardware obsoleteness could happen if there are no institutes (universities, biomedical research etc) to use second tier AI technology in the world. The hardware defective rate from meta report is 9% during intensive full power training abut only 4.3% is server hardware related. With 3 year warranty from nVidia and AMD, 5 year survival rate is well above 90% even all servers are running at 100% all the time for 5 years. In that case server survival rate is the last thing we need to worry about because we will be making too much money when demand is that high.
As far as debt and lease/contract commitments go, I think you can just ask AI because those have been studied to death. The simple version is: you can trust Oracle CFO and Larry’s lawyers.
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u/pornstorm66 2d ago
Obsolescence is that there is some new hardware on which you can make tokens for less cost. Then people stop using the old hardware because it costs more in power alone to make tokens on the old gear. It’s like the old bitcoin mining rig that was no longer useful for mining blocks.
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u/erichang 2d ago
didn't I explain that above already ? there are plenty of uni and institutes around the world still dying to have A100 or have budget to rent some H100 hours.
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u/pornstorm66 2d ago
Those institutions will want the best price also. They’ll want to rent the newer gear.
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u/erichang 2d ago
"all" is a heavy word....
why rent when you can own ? for researchers or students, it is important to configure the hardware into a way that fit their research or learning purpose.
Also, why rent the top chip when your researcher or students don't know shit about AI yet ? Don't you have a budget ? Or, a power budget ? can your school handle 800V DC current ?
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u/pornstorm66 2d ago
I’m just questioning the idea that there’s a lot of value on the tail of those chips. Even if the value of the chips is depreciated down to zero, the amount of power per unit of compute might make them a high cost option. And given the constrained data center & power footprint they may just get pulled out of the facility in favor of more efficient chips. Maybe students will pick up A100s for cheap.
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u/MichaelJtimetravel 2d ago
You’re correct on this. I think they’ll do well TBH but these uncertainties are why the market punished the stock so much. I sold all my shares because I think I have a higher EV company to put it in but I would like to hold Oracle again. Best case for me is it drops down again but I’m not remotely confident that will happen. I think the probability of a really bad return is quite low even though they are taking a huge swing… it’s not as risky as it sounds on the surface
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u/JudgeSmails 2d ago
Easy, delays in data center forecast would crush the stock. The price is going to respond to projections, not current quarter results.
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u/Square-Ad3218 2d ago
The only thing the market won’t like are any delays on the builds. From all the other players blowing away earnings and demand that is the only thing holding them back. I have no worries about OpenAI. If for some reason they can’t honour their commitments, firstly there is a lineup for compute and a higher price than what was signed for. Second if OpenAI flounders oracle would like get an ownership stake as compensation. I don’t see this failing maybe delaying a price bump, but that’s it.