Five months ago, Oracle saw an extraordinary rise, bringing its market value close to $1 trillion and briefly making co-founder Larry Ellison the richest person in the world.
In light of consistent profits and future growth prospects, companies like Broadcom and Netflix were categorized among the “Ten Giants” alongside the likes of Nvidia, Alphabet, Apple, Microsoft, Amazon, Meta Platforms, and Tesla.
However, it appears my prediction that Oracle would remain a leading stock in 2026 was somewhat misplaced; currently, Oracle’s stock has dropped 52% from its peak and is down nearly 19.5% for this year.
This brings up a crucial question: why are investors pulling away from Oracle, what doubts are being raised about its potential, and is it a good time to consider buying during this decline?
Oracle is heavily investing in its Cloud Infrastructure, specifically to meet growing demands from AI. In the last quarter, cloud revenue represented 50% of total earnings. Yet, the company’s core database and data management software continues to be its main source of profit.
The software sector is facing worries that AI advancements could disrupt traditional workflows. Notably, Microsoft is expected to have the worst performance among the “Magnificent Seven” by 2026. Moreover, ServiceNow has seen its value decline by a third this year.
While there are signs that Oracle’s dip may be overdone, it could still be impacted by broader market trends.
Oracle reached an all-time high after releasing first-quarter financials for 2026 in September, thanks in part to an ambitious plan aimed at boosting Cloud revenue from roughly $10 billion in FY2025 to $144 billion by FY2030. Their remaining performance obligation surged by 359%, indicating solid future contracts. In December, this was adjusted to $523 billion, with high-profile agreements with major players like Meta. However, a significant chunk of this is tied to OpenAI, which represents about $300 billion of that obligation.
Investor skepticism is growing regarding OpenAI’s capacity to support these hefty financial commitments. For instance, Microsoft faced a sell-off after revealing that 45% of its $625 billion remaining obligation was connected to OpenAI.
Adding to the challenges, Anthropic’s Claude model poses a serious threat to OpenAI’s position, leading investors to reassess the value of Oracle’s contracts.
Amid falling software stock prices and a waning confidence in OpenAI partnerships, Oracle’s stock has become less appealing. Unlike many of its competitors, Oracle currently lacks positive free cash flow and is leaning on debt for expansion.
Presently, Oracle’s price-to-earnings ratio stands at 26.8, with a forward P/E of 19.4, making it seem relatively affordable. However, investing in Oracle means having faith that its core software will continue to generate strong cash flow, that OpenAI will fulfill its obligations profitably, or that Oracle can pivot to other clients if OpenAI’s orders were to fall short.
Given these uncertainties, it’s likely best suited for those with a higher risk tolerance who are aligned with Oracle’s long-term vision.
Before considering an investment in Oracle, potential buyers might want to keep the following in mind:
Analysts from Motley Fool Stock Advisor have pinpointed ten stocks they believe are worth investing in now, and Oracle isn’t one of them. These selected stocks have the potential to offer significant returns in the coming years.
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