Oracle earnings may not be enough to assuage debt, AI deal fears

Core Viewpoint - Oracle Corp. is experiencing a significant decline in its stock price, down 33% since reaching an all-time high, amid skepticism regarding its financial health and the broader AI sector [2][3]. Financial Performance - Analysts expect Oracle to report an 11% increase in adjusted earnings per share and a 15% rise in revenue, with gross margins projected to be nearly 69%, down from 71% a year earlier [6]. - Capital expenditures are projected to be $8.2 billion, significantly higher than less than $4 billion a year ago, while free cash flow is estimated to be negative $5.9 billion, worsening from $2.7 billion a year earlier [6]. Market Sentiment - There is a perception issue regarding Oracle's growth strategy, with concerns about how the company is financing its expansion and the sustainability of its customer base [4][6]. - Investors are particularly focused on Oracle's relationship with OpenAI, especially given the recent challenges faced by the startup [8]. Valuation Concerns - Oracle's shares are trading at approximately 30 times estimated earnings for the next 12 months, which is significantly higher than its 10-year average of 17 and above the Nasdaq 100 Index's multiple of 26 [9]. Investor Behavior - Some investors are hesitant to buy Oracle shares at the moment, preferring to wait for evidence of margin improvement and effective execution of growth strategies [10].