Oracle's biggest critic, Goldman Sachs, admits it was wrong about rating the stock a sell

Advertisement
Oracle's biggest critic, Goldman Sachs, admits it was wrong about rating the stock a sell
Oracle CEO Safra CatzOracle
  • Oracle reported a record-breaking $49.95 billion in annual revenue thanks to success in cloud computing.
  • It has convinced its biggest critic, Goldman Sachs, to change its mind about its potential.
Advertisement

On Monday, database giant Oracle announced a record-breaking $49.95 billion in revenue for its 2023 fiscal year, with a healthy 42% profit margin, excluding extraordinary expenses. And on Tuesday, Oracle's biggest critic, Goldman Sachs analyst Kash Rangan, admitted he was wrong.

Rangan upgraded the stock from a sell rating, which he imposed a year ago, to neutral, meaning that if you own the stock, keep it, but he's not going so far as to advise investors to buy a lot of it.

Most analysts tracked by Yahoo Finance do not agree with that tepid recommendation. After Monday's earning, there are far more who rate the stock a buy/strong buy (26) than a hold (9). So take that begrudging guidance from Rangan with a grain of salt.

Complimentary Tech Event
Transform talent with learning that works
Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

He did gracefully swallow his pride enough to admit that since he first imposed the sell rating, the stock has climbed 46%. And we'll give Rangan a break by pointing out that the stock did hit a 52-week low in September, some months after his warning. But it has been on an upward trajectory since October. He says he remains cautious because he thinks the stock is about rightly priced now.

What's swayed him and others is that Oracle's underlying fundamentals are astoundingly good at the moment for a software company as mature as it is, even while it plays catch-up to the biggest trend in tech, the shift to cloud computing.

Advertisement

Oracle is still spending gobs of money building out its data centers. CEO Safra Catz said that the only thing holding the company back from even faster cloud growth is "how fast we can put out even more capacity to our customers."

It spent $8.7 billion on capital expenditure, mostly for data centers, in 2023 and she has decided to go ahead and spend that much again in fiscal 2024. And because Oracle has partnered with Microsoft (who used to be a major rival, as Microsoft also offers a very popular database), Oracle cloud customers can easily access a broader set of cloud services from Azure, a far bigger cloud provider.

If the $50 billion in 2023 revenue wasn't enough to convince investors to stick around, the company also said it's still on track to reach another record-breaking $65 billion in revenue by 2026 while maintaining roughly 45% margins. And the stock pays dividends, including 40 cents a share for the fourth quarter.

Then again, in fairness to Rangan for calling a rare sell rating and having to eat a bit of crow, Morgan Stanley's analyst, Keith Weiss remains luke warm on Oracle as well. In Weiss's Tuesday note, he reiterated his "equal weight" rating (the equivalent to a hold) and a modest $105 price target (the stock is currently trading at about $117).

Weiss explained that while the cloud business is doing better than expected, he's waiting to see if Oracle can continue to keep its massive number of customers from moving to other options as they move to the cloud. And he's also got his eye on Oracle's cash situation, given how expensive it is to build and maintain data centers.

Advertisement
{{}}