Tech giant Oracle (ORCL) might be adding another $38 billion in debt to expand its cloud and AI infrastructure, according to CNBC. This would come on top of the company’s already large $104 billion debt load, which includes $18 billion in bonds. Oracle has been aggressively investing in AI infrastructure and has secured deals with companies such as OpenAI (PC:OPAIQ). However, it’s currently spending more than it earns from its operations.
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Still, some experts say that Oracle’s strategy isn’t unusual. Lisa Shalett from Morgan Stanley Wealth Management explained that many big tech companies are trying to invest heavily in AI and cloud growth while still keeping up stock buybacks. To do both, they’re increasingly turning to debt. But this approach has made bondholders nervous.
As a result, Oracle’s bond values have dropped. For example, the price of its 2033 bonds (which pay 4.9% interest) has fallen and pushed up yields by more than three basis points in just two weeks. Its newer 2032 bonds have also seen yields climb nearly two basis points in a week. Credit analyst Stu Novick said that there’s been clear selling pressure, with many investors now wondering whether Oracle’s massive infrastructure spending will eventually pay off.
Is ORCL Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ORCL stock based on 25 Buys, 11 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average ORCL price target of $354.13 per share implies 59% upside potential.
