3 Reasons Oracle Stock Could Tumble
Oracle (ORCL) has stumbled before. Its stock has plunged more than 30% within a span of less than 2 months on 2 occasions in recent years, wiping out billions in market value, and erasing massive gains in a single correction. If history is any guide, ORCL stock isn’t immune to sudden, sharp declines.
Specifically, we see these risks:
- Crippling CapEx Burn and Negative Free Cash Flow
- Extreme Customer Concentration and Counterparty Risk
- Legacy Business Decay and Fierce Hyperscaler Competition
Risk 1: Crippling CapEx Burn and Negative Free Cash Flow
- Details: Projected negative $25 billion free cash flow in fiscal 2026., Potential for significant EPS miss and valuation de-rating.,
- Segment Affected: Oracle Cloud Infrastructure (OCI)
- Potential Timeline: Immediate, through fiscal 2026-2028
- Evidence: Fiscal 2026 CapEx guidance doubled to $50 billion., Securities fraud investigations initiated after dramatic guidance shift.,
Sources: 10-K Filings, Recent Earnings Reports, News of Securities Investigations
Risk 2: Extreme Customer Concentration and Counterparty Risk
- Details: OpenAI could represent one-third of total revenues by fiscal 2028., Default by this single, cash-burning customer would be catastrophic.,
- Segment Affected: Oracle Cloud Infrastructure (OCI)
- Potential Timeline: Ongoing, with heightened risk in fiscal 2027-2028
- Evidence: A $300 billion deal with OpenAI, a startup reliant on external funding., OpenAI is projected to burn through approximately $100 billion over the next three years.,
Sources: Analyst Reports, Financial News
Risk 3: Legacy Business Decay and Fierce Hyperscaler Competition
- Details: Flat to declining revenues in legacy on-premise and hardware segments diluting overall growth., Inability to gain meaningful share from dominant cloud providers (AWS, Azure, Google) could strand massive CapEx investments.,
- Segment Affected: Legacy Hardware and On-Premise Software, Broader Oracle Cloud Platform
- Potential Timeline: Ongoing, with increasing pressure over the next 2-3 years
- Evidence: Oracle remains a niche player in the broader enterprise PaaS and SaaS markets., High customer acquisition costs due to a persistent perception gap with the major cloud hyperscalers.,
Sources: Analyst Commentary, Competitor Market Share Data
What Is The Worst That Could Happen?
Looking at Oracle’s risk during tough market times shows some clear dips. It plunged 77% in the Dot-Com crash and 41% in the Global Financial Crisis. The Inflation Shock hit 40%, while Covid and 2018 corrections still caused drops around 19-29%. Even solid names face big swings.
Is Risk Showing Up In Financials Yet?
- Revenue Growth: 11.1% LTM and 9.8% last 3-year average.
- Cash Generation: Nearly -21.6% free cash flow margin and 31.9% operating margin LTM.
- Valuation: Oracle stock trades at a P/E multiple of 36.8
| ORCL | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| PE Ratio | 36.8 | 23.5 |
|
|
||
| LTM* Revenue Growth | 11.1% | 6.1% |
| 3Y Average Annual Revenue Growth | 9.8% | 5.4% |
|
|
||
| LTM* Operating Margin | 31.9% | 18.8% |
| 3Y Average Operating Margin | 30.8% | 18.3% |
| LTM* Free Cash Flow Margin | -21.6% | 13.4% |
*LTM: Last Twelve Months
If you want more details, read Buy or Sell ORCL Stock.
The Best Investors Think In Portfolios
Stocks can jump or crash but long term success comes from staying invested. The right portfolio helps you ride gains and cushion single stock drops
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.