Citi is sticking its neck out on the beaten-up stock price of cloud computing giant Oracle (ORCL) after an epic 12-month sell-off of close to 40%. In a note on Wednesday, analyst Tyler Radke opened a "positive catalyst watch" on the stock. His $330 price target remains unchanged.
"We see opportunity after one of the most extreme dislocations and drawdowns in the stock's history, driven by investor capitulation and multiple technical selling factors (credit spreads, ATM issuance)," Radke wrote. "We believe shares can work as continued robust AI demand trends and margin/pricing read-throughs from neoclouds set the stage for positive estimate revisions into earnings and investor day in late October."
It has been a rough run for Oracle's stock.
Investors have questioned whether Oracle's AI-fueled growth expectations have become too aggressive.
While Oracle continues to sign large cloud infrastructure deals and benefit from demand for AI computing capacity, the market is concerned that the stock's valuation already reflects years of strong growth. There are also worries that Oracle will need to spend heavily on data centers, networking equipment, and power infrastructure to meet customer demand, which could pressure margins and cash flow in the near term.
Competition from Microsoft Azure (MSFT), Amazon Web Services (AMZN), and Google Cloud (GOOG, GOOGL) remains intense as well, making it difficult to predict how much market share Oracle can ultimately capture during the AI boom.
Somewhat bizarrely, the Wall Street analyst community has stayed unapologetically bullish on Oracle with a steady drumbeat of reiterated Buy ratings.
Yahoo Finance AlphaSpace data shows that about 86% of the sell-side analysts that cover Oracle have either a Strong Buy or Buy rating on the stock.
"I'll tell you there's big execution risk," BD8 Capital Partners CEO and chief investment officer Barbara Doran said on Yahoo Finance's Opening Bid. "I mean, there's no question they have a huge backlog, although there is big customer concentration risk there. But it's really the debt issue, as we know. And S&P just downgraded to triple B minus. That is one notch above junk status. And so they're really betting the house on this continued demand and the fact that there is plenty of room for more capacity to be added, but it's going to take time."
It's unclear what this group is looking at, but surely it hasn't been an Oracle stock chart over the past year.
Citi's Radke noted that Oracle's stock has "massively" underperformed all large-cap tech peers over the last three months. The stock has also featured a 50% peak-to-trough plunge within just 30-40 days, Radke says, marking a "four to five standard deviation move versus historical volatility."