Oracle’s (NYSE:ORCL) Q1 2025 stock price pullback is an opportunity to buy this AI play at a deep discount. Down 25% from its highs, the stock trades at a value relative to its peers, earnings outlook, capital return, analysts’ forecast and technical price action. Here’s a look at why.
Oracle Is in a New Game; A Higher Multiple Is Warranted
Oracle appears to be overvalued when trading at 25x current and 23x next year’s earnings outlook, but this is relative to other software stocks. Names like IBM (NYSE:IBM), Adobe (NASDAQ:ADBE), and even Salesforce (NYSE:CRM) trade at lower multiples this year, but Oracle isn’t just a software stock.
Not anymore. Its lean into data centers, plans to double its capacity, and small but measurable and rapidly growing market share make it a hyperscaler. And not just any hyperscaler. A hyper scaler focused on embedded AI services and AI infrastructure that are central to AI data management across the global data center ecosystem.
While accounting for only 2% of the global cloud market at the end of 2024, Oracle’s cloud business is growing at a high double-digit pace and is expected to sustain it in 2025 and 2026. Deals with Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOGL) give it one of the largest data center footprints globally, reaching more than 70% of the addressable market, excluding its other exposure. In that light, the company could trade as high as 30x this year’s earnings, suggesting it could rise by 20% relative to the mid-March trading levels.
Oracle’s Market Isn’t Price in the Growth Outlook
Oracle’s stock price is also undervalued relative to its growth outlook. The 27 analysts tracked by MarketBeat forecast a revenue CAGR in the low teens through 2034, with EPS growing faster. Earnings are predicted to grow at a high CAGR through 2034, putting its forward P/E at 12x in 2030 and 7x by 2034.
In this scenario, the stock price could rise by 200% to 250%, aligning the 2034 P/E multiple with the 2025 multiple within the next ten years. Assuming the company gains traction and outperforms or the analyst’s forecasts are too low, either of which are reasonable assumptions in early 2025, the upside potential is greater.
Oracle Is a Dividend Growth Stock With a Robust Growth Forecast
Oracle’s dividend is roughly equal to the average S&P 500 payment in early 2025 but is undervalued due to its growth outlook. Oracle pays less than 35% of its 2025 earnings forecast and has been growing its payment at a higher-than-average pace for years. The company can continue to sustain the pace because of the payout ratio, the earnings growth trajectory, and the balance sheet.
The balance sheet still carries some debt, but it is falling under the influence of the AI-improved cash flow despite investment in AI infrastructure. The takeaway is that this company can continue to increase its payout at an above-average pace for at least the next ten years. The opportunity and potential catalyst is that Oracle may improve the regularity of increases from every few years to annually.
Analysts Forecast a Double-Digit Upside for Oracle Stock
Analysts reset their stock price outlook for Oracle, aiding the downdraft in price action, but the market has overrun the shift. The analysts’ price target reductions align with the consensus target, which forecasts a nearly 20% upside from the $150 level and is bolstered by an improvement in sentiment. The company received a solid upgrade from Sell to Neutral, improving the bullish bias and reducing the number of Sell ratings to zero.
The Technical Action: Oracle Hits Bottom, Ready to Rebound
The technical action indicates Oracle’s stock price hit bottom in early 2025 and is ready to rebound. The market hit fresh lows in March, leaving stochastic and MACD in divergence and showing strengthening support near the $150 level. The increased support has the market set up for a bullish price swing that could take the stock up to the consensus of $180 or higher.
However, the critical resistance point is near $160 and may not be broken without a change in broad market sentiment and relief from tariff and recession fears. 