The bulls and bears have been locked in a battle over artificial intelligence stocks in recent months.
The artificial intelligence (AI) sector has been in the spotlight for several years. Much of the ride has been up and to the right, but recently a cohort of the market has started to cast more doubt on AI valuations and all the spending on AI infrastructure, leaving investors wondering what returns will look like and whether the hyperscalers are hitting the gas too early.
Still, a large part of the market, including Wall Street analysts, sees room to operate in the AI sector. Here’s one AI company we need to buy before it can double down and join the exclusive $1 trillion club Tesla And MetaplatformsThat’s what several Wall Street analysts say.
A bumpy data center ride
Old cloud provider Oracle (ORCL +3.10%) had a tumultuous end to 2025. In September, the company left the market stunned after reporting huge profits and providing jaw-dropping expectations that investors didn’t see coming.
Image source: Getty Images.
Oracle struck several major deals with hyperscalers to provide AI cloud capabilities, including a $300 million deal with OpenAI. At the time, Oracle had $455 billion in remaining performance obligations (RPOs), which are essentially contracted revenues that have yet to be realized. The stock rose about 40% after the phenomenal September report.
However, when investors started digging in, the outlook became much bleaker. The information reported that Oracle’s data center business was operating on tight margins. Oracle had to raise tens of billions in debt to complete its data center buildout, and it turns out that OpenAI has $1.4 trillion in outstanding data center liabilities, leaving the market wondering how the company plans to finance it all.
In its most recent earnings report in December, Oracle missed revenue expectations, reported negative free cash flow and raised its investment guidance, sending shares lower. The stock ended the year up about 17%, but gave back all the gains after September’s huge earnings report.
Several Wall Street analysts believe the concerns are overblown
In December, concerns surrounding Oracle were significant and the yield on the company’s five-year credit default swaps, which are essentially insurance against the company defaulting on its debt, soared. But Wall Street analysts Jefferies And Mizuho believe these concerns are overblown and expect the share price to more than double over the next twelve to eighteen months.
Jefferies analyst Brent Thill reiterated a buy rating on the stock and set a $400 price target. Essentially, Jefferies believes that Oracle will be able to complete its data center buildout and convert its RPOs into real revenue, making it one of the key enablers for AI. Thill is happy with the risk-return proposition and values the share at sixteen times the enterprise value compared to earnings in the calendar year 2027 before interest and taxes.
Today’s change
(3.10%)$6.16
Current price
$204.68
Key data points
Market capitalization
$588 billion
Day range
$197.01 -$206.60
Range of 52 weeks
$118.86 -$345.72
Volume
25M
Avg. full
25M
Gross margin
65.40%
Dividend yield
0.98%
Mizuho analyst Siti Panigrahi also has an outperform rating on the stock and a $400 price target. Panigrahi and his team believe the company has a good financing strategy that focuses on vendor financing, graphics processing unit (GPU) leases, and even customers supplying their own chips, allowing the company to save upfront capital and better align profits with cash flows.
Panigrahi also pointed out that management is focused on maintaining an investment-grade rating from the credit rating agencies and denied reports that the company is behind schedule in providing data center capacity to OpenAI.
Better risk-reward setup
Oracle undoubtedly poses real risks, including a high debt burden and the possibility of OpenAI being spread too thinly. That said, the price action of recent months has taken this into account, at least somewhat, so I think the risk-reward proposition has improved. The stock now trades at 18 times forward earnings. There is still a good chance that AI will be ubiquitous in the long term, much like the internet. If that’s true, the industry will need these data centers.
Oracle stock could be choppy this year, and as I said, it remains a high-risk, high-reward strategy. However, I think investors can start with a small, speculative position and perhaps build on that as the company’s prospects become clearer.
