Oracle stock has sold off this year, and has become one of the top laggards in the S&P 500 Index. It has slumped by over 40% from its highest point this year. This retreat may continue as the company faces some major headwinds.
Oracle stock at risk as a new $18 billion headwind emerges
There are signs that Oracle’s business is coming under pressure this year. One of the main issues is its massive data center project in New Mexico, which is facing local criticism ahead of the upcoming election.
Data shows that $18 billion worth of loans tied to this data center are coming under strain, a sign that investors are becoming jittery about the local backlash.
Loans tied to “Project Jupiter” were quoted between 89 and 91 cents on the dollar by top syndicate banks like Santander and Jefferies. That amount is a sign that investors in the debt market are afraid that the project may fail. In a healthy market, the debt tends to trade near par.
Project Jupiter is a major part of Oracle’s AI ambitions. It is made up of a 1,400 parcel of land and is part of the giant $300 billion contract with OpenAI, the creator of ChatGPT. It has faced significant local opposition and is experiencing a power issue after permission to connect a pipeline to feed Bloom fuel cells was blocked.
The project received $18 billion financing last year, but efforts to offload it has faced challenges amid concerns about its performance. Investors are also concerned about Oracle’s soaring debt and declining creditworthiness.
These events are happening a week after Larry Ellison announced that he would sell shares worth $7.5 billion. He then abruptly cancelled the sale without any explanation, a sign that he believes that the sale would lead to a deterioration of the stock.
These events are happening after Oracle announced relatively strong results. Its numbers showed that its revenue jumped 30% in the first fiscal quarter to $19.3 billion, with its cloud division making $11.6 billion.
Most importantly, its remaining performance obligations (RPO) rose to $664 billion, with $300 billion being from OpenAI.
Analysts expect that Oracle’s business will continue growing in the foreseeable future. Its revenue is expected to grow by 34% this year to $90.46 billion, followed by $131 billion next year.
Oracle stock price forecast
ORCL stock chart | Source: TradingView
The daily chart shows that the ORCL stock has pulled back in the past few months. It has slumped from a high of $250 in January to the current $147. It has dropped below the ascending trendline that connects the lower side of the ascending trendline.
Oracle has dropped below the 50-day moving average, while the Relative Strength Index (RSI) has moved below the neutral level of 50. It has also formed a rising wedge pattern, which is a popular bearish sign. Therefore, the stock may drop to the support at $100 as its debt issues continue.
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