CLSA placed a Hold rating on corporate software and cloud computing company Oracle (ORCL, Financials) for concerns about the cost of funding its ambitious artificial intelligence expansion.
CLSA analyst Bhavtosh Vajpayee predicts Oracle would need up to $500 billion financing by 2030 to fulfill its AI infrastructure ambitions. The business thinks the corporation can raise only a portion of that internally, leaving it reliant on more borrowing.
Oracle had total debt of $167.4 billion in the quarter and a debt-to-equity ratio of 4.46. CLSA said the level of leverage could make the company more sensitive to changes in financing costs, execution and demand for AI cloud services.
The firm set a $145 price objective, implying 18 times its fiscal 2028 GAAP earnings forecast. Oracle is gaining traction in AI cloud infrastructure but the investment case hinges a lot on how effectively the company can fund its expansion, and compete with bigger cloud providers, CLSA said.
Oracle continues to add AI-related customers and partnerships but investors will likely continue to focus on capital investment, debt levels and cloud revenue growth as the firm builds its AI business.