What's Happening With ORCL Stock?
With a 43% increase year-to-date (YTD), Oracle stock (NYSE:ORCL) has performed significantly better than the broader S&P 500 index, which has risen by 7%. This outperformance can be partly linked to the increasing demand for Oracle's cloud services amidst the AI boom. The company's Cloud Infrastructure (OCI) and Cloud Application (SaaS) revenues have been steadily growing at impressive rates. Even when considering a slightly longer timeframe, ORCL stock has skyrocketed an astonishing 3x since early 2023, propelled by three key factors:
We will delve into these factors in greater detail. Although ORCL stock has provided substantial returns, those in search of growth with lower volatility than individual stocks might consider the High Quality portfolio, which has surpassed the S&P 500 with returns exceeding 91% since its inception. Additionally, refer to – SOUN Stock To $20?
What's Behind The Revenue Growth?
Oracle has shown robust fundamental performance with a 35% increase in revenue, which has expanded from $42 billion in 2022 to $57 billion in the trailing twelve months. The company's impressive advancement is primarily driven by the increasing demand for its Cloud Infrastructure (OCI), significantly fueled by the Artificial Intelligence (AI) boom.
What's Driving The Valuation Higher For Oracle Stock?
Oracle's stock has undergone a significant surge in valuation multiples, with its price-to-sales (P/S) ratio escalating 127% from 5.2x in 2022 to 11.8x presently. Several critical factors are propelling this continued growth:
But What Next? Is ORCL Stock A Buy At $235?
Currently trading at around $235, Oracle (ORCL) stock appears to be highly valued. Its price-to-sales (P/S) multiple is at 11.7x, significantly above its four-year average of 6.5x. Likewise, the stock's trailing adjusted earnings multiple is 54 times, considerably higher than its average price-to-earnings (P/E) ratio of 32 times over the previous four years. While Oracle is undoubtedly positioned to gain from the growing adoption of AI and the increased demand for cloud infrastructure, these favorable elements appear to be fully accounted for in the existing stock price. See Oracle's Valuation Ratios for more context.
But There Are Risks
Despite the positive outlook, there are significant risks to consider. During the inflation-driven downturn of 2022, ORCL stock fell by 41%, dropping from a peak of $104 in December 2021 to $61 by September 2022. In comparison, the S&P 500 experienced a smaller decline of 25%. Although ORCL recovered to its pre-crisis peak by May 2023, a similar sell-off took place earlier this year due to trade war fears, with ORCL plunging nearly 34%, which was steeper than the 19% drop for the S&P 500. More information is available in our Buy or Sell Oracle Stock dashboard.
In addition to macroeconomic and geopolitical risks, Oracle faces internal challenges, particularly concerning its significant capital expenditures. From just $4.5 billion in 2022, the company's capital expenditures soared to over $21 billion in fiscal 2025 and are projected to exceed $25 billion this year. A critical question remains: What happens if these large-scale investments do not yield the anticipated returns?
We now implement a risk assessment framework as we construct the 30-stock Trefis High Quality (HQ) Portfolio, which has a proven record of comfortably outperforming the S&P 500 over the last 4-year period. What is the reason? As a collective, HQ Portfolio stocks have yielded superior returns with reduced risk compared to the benchmark index, providing a less volatile experience, as reflected in HQ Portfolio performance metrics.
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