That’s a monster 33% gain at the start of trading on Wednesday.
Earny and I discussed this and he was a little confused.
Earny asks, if Oracle couldn’t even match the earnings result that analysts were expecting, why did buyers aggressively buy the stock? Was it FOMO?
ANSWER
The answer, as with anything in investing, lies in future expectations, or, as Earny said, FOMO-Fear of Missing Out.
You see, Oracle’s management told investors that the future for the company was so bright that they could just sit back and watch the money roll in. I mean not really, but sort of.
In their earnings call, they discussed their backlog, or commitments for future business from the companies that are building our AI-controlled future. Those companies have committed to $455 billion in future purchases with Oracle. That’s an increase of 359%.
In other words, it’s not about current earnings. Those were meh. It’s all about the future and Wall Street thinks that Oracle will have significantly higher earnings down the road than it does today.
Buyers said to sellers, “we must have your shares!” Sellers said, “you’re welcome to them, but it’s gonna cost you more today than yesterday!” In the end, those buyers and sellers agreed that $320 was the right price and that’s where the stock opened on Wednesday.
FOMO.
But is it the right price? I mean, that’s what the market says. But should you or I buy shares? I dunno. Filthy Rich Animal can’t give you specific investing advice since we don’t know you personally and are not aware of your goals.
The point is, the stock rallied on expectations that the future would be better than the present.
As Annie said, the sun'll come out tomorrow.
Good practice for any investor is to see what other analysts think. And there are bullish and bearish cases to be made about Oracle, even at these lofty prices.
On the bearish (pessimistic) side:
Valuation. Sarge says that shares are trading at enormous multiples to earnings. In other words, when you buy shares, you’re paying a lot for each dollar of that company’s earnings.
It’s a zero sum game. Doug Kass says that “...Oracle's future revenues are someone else's future capital spending. (According to the conference call three individual companies contributed to much of the company's dramatic rise in backlog.)”
Kass also claims that the company’s margins (profits on each dollar of revenues) will decline.
Exposure: You probably already own Oracle. It’s the 11th largest company in the S&P 500, so, if you own an S&P 500 ETF, you have exposure to Oracle already.
On the bullish (optimistic) side:
The AI trade is in the early innings and there’s so much investment being made that will create incredible opportunities.
According to TipRanks, Analysts have a target price of $333, about 11% higher than the price as of the time I’m writing this.
There’s two sides to every story and if you’re only looking at one side, you’re not doing a good job in your analysis.
I like this Bulls say, Bears Say table from TipRanks, which does a nice job of summarizing what the analysts are thinking, into bullish and bearish arguments. It’s a good starting point.
