Oracle's OpenAI Illusion: The Data Speaks

Another Tuesday, another market recalibration. Oracle Corporation (ORCL) saw its stock slide a noticeable 3.5% today (a drop of $3.25, to be precise), settling near $197.03. For anyone paying attention, this wasn't some random market noise. This was the quiet thud of reality landing squarely on a valuation built on less-than-solid ground, a reality check delivered by DA Davidson analyst Gil Luria. He kept his "neutral" rating—a polite way of saying "don't buy this"—but slashed his price target by a full third, down to $200 a share.

Now, on the surface, $200 might not sound terrible when the stock is trading just under $194. It even implies a slight upside, numerically speaking. But anyone who stops there is missing the forest for the trees. Luria’s cut isn't about a few dollars; it's a surgical strike at the narrative Oracle has been spinning, particularly around its much-hyped OpenAI commitments. And this is the part of the report that I find genuinely puzzling, because the pattern is so familiar.

The Cracks in the OpenAI Narrative

Let's rewind a bit. Back on September 9th, when Oracle reported its earnings, the company painted a picture of broad customer engagement driving an increase in their backlog. It sounded like a robust, diversified growth story. Then, the very next day, the truth started to leak out: OpenAI, and OpenAI almost exclusively, was the engine behind that "entire increase." Oracle's reported $300 billion, five-year contract with OpenAI was paraded as a monumental win, a clear victory in some unspoken "bake-off" against the industry's titans.

My analysis at the time, even when the stock was soaring at $328 a share, suggested caution. The numbers just didn't quite add up to that level of exuberance. Fast forward to today, and Luria’s assessment confirms those initial red flags. OpenAI, it turns out, has since announced over $1 trillion in other AI data center contracts. That's not a typo—$1 trillion. What does that make Oracle's "biggest commitment" look like now? Luria’s words cut through the corporate gloss: he sees OpenAI as "not a serious counterpart" and Oracle as "a pawn in the grand game of fake it 'till you make it."

This isn't just about a missed revenue projection; it's about the integrity of the market narrative. When a company, particularly one with Oracle’s heft, presents an increase in backlog as stemming from "several customers" only for it to be almost entirely one, it raises serious questions. Was this a deliberate obfuscation, or merely an overly optimistic framing that conveniently omitted critical context? Either way, it’s a methodological critique that investors need to internalize: always question the source and the specificity of your data. How many other "wins" are built on such shaky ground, waiting for an analyst like Luria to pull back the curtain?

The Unvarnished Numbers and What They Tell Us

The true worry, beyond the theatricality of the OpenAI deal, lies in Oracle's valuation. I warned about this when the stock was trading at $328. Forty percent in losses later (to be more precise, a 40.0% decline from its 52-week high of $345.72 to its current ~$197), and my concerns haven't evaporated. They've intensified.

Oracle stock currently trades at 46 times earnings. Let that number sink in. Forty-six times. Compare that to its forecast growth rate, which, even including the potentially shaky OpenAI revenue, stands at a modest 23% per year. That gives us a PEG ratio of 2.0. For any value investor worth their salt, a PEG ratio of 2.0 is at the extreme end of what might be considered "fair." It's like buying a used car for the price of a brand new luxury sedan, simply because the seller promises it might eventually learn to fly. If those OpenAI orders don't materialize, or even if they just scale back significantly, that already stretched valuation will snap.

The market cap still hovers around $562 billion ($571 billion by some estimates), with a gross margin of 66.10%. These are big, impressive numbers, but they don't insulate a company from a fundamental mispricing. The stock's year-to-date performance still shows a 21.38% gain, which only adds to the illusion of strength for those who aren't looking closely at the recent trajectory or the underlying fundamentals. The average trading volume is 26,153,714 shares, yet today's volume was only 88K, suggesting a relatively quiet, but decisive, erosion of confidence. This isn't a speculative frenzy; it's a slow, deliberate reassessment.

When the narrative shifts from "Oracle won the AI race" to "Oracle was a minor player in OpenAI's funding scramble," the entire investment thesis needs a complete overhaul. The numbers, as always, are the only honest brokers in this game.

The Emperor's New Cloud Deal

Oracle's valuation, despite the recent slide, still doesn't reflect the precariousness of its key growth narratives. The data screams caution, particularly when a significant "win" is exposed as little more than a supporting role in someone else's much larger drama. Investors betting on Oracle based on its initial OpenAI fanfare are holding a ticket to a show that might never reach its advertised climax.