Oracle stock price has surged, but beware of key risks

Oracle stock price continued its strong surge this week, reaching its all-time high. This surge has pushed Larry Ellison’s net worth to over $260 billion, making him the second-richest person globally. It was trading at $241, up by 105% from its lowest point this year. 

Why Oracle stock price has surged

ORCL stock price has been in a strong bull run in the past few years as its business trajectory has improved. SeekingAlpha data show that the company’s annual revenue jumped from over $40.4 billion in 2021 to over $57.3 billion in the last year.

This growth happened as its core database solutions continued growing as companies move their workloads to the cloud. At the same time, it has transformed itself into one of the largest cloud computing infrastructure companies globally.

Oracle has also become one of the top providers of artificial intelligence solutions globally. For example, it has a relationship with OpenAI, which recently agreed to rent an unprecedented sum of computing power from the company.

Oracle is also a partner with OpenAI and Softbank in the $500 billion Stargate project that was launched earlier this year. On top of this, Larry Ellison, the company’s founder and chairman, has a long relationship with Donald Trump, who has proposed it to bid for TikTok, the popular social media application.

Oracle is growing, but valuation concerns remain 

The most recent results showed that Oracle’s business continued to grow in the fourth quarter of the year. Its remaining performance obligations jumped by 41%  to $138 billion as demand for its AI and cloud infrastructure solutions rose. 

Oracle’s revenue jumped by 11% to $15.9 billion, with its cloud infrastructure rising by a whopping 52% to $3 billion. Its Fusion ERP business grew by 22% to $1 billion, while the NetSuite ERP jumped by 18% to $1 billion. 

Wall Street analysts expect that its business will continue growing by double digits. Its average revenue estimate for the first quarter is $15 billion, up by 13% from the same period last year. 

Analysts expect that its annual revenue will grow by 16% this year, followed by 19% next year. These are strong numbers for a company that was established decades ago. 

Oracle’s profits are also expected to keep growing. The average estimate for its EPS in the current quarter is $1.47, up from $1.39 a year earlier.

Still, there are some concerns about the Oracle stock price. First, at $241, the stock is much higher than the average analyst estimate of $215. That is a sign that the company may be overvalued.

Second, the company trades at a forward price-to-earnings (PE) ratio of 48.20, higher than the sector median of 30.50. Its forward EV/EBITDA ratio of 21.8 is also higher than 15.1.

Third, the company’s insiders are selling the shares. Safra Catz, the CEO, has sol over $1.8 billion in shares in the last three months. Insider sales are widely seen as being bearish for a company.

Read more: Orcl stock surges 8% at open: here’s why Oracle shares are near 52-week high

Oracle stock price technical analysis

The daily chart shows that the ORCL share price has been in a strong bull run in the past few years. It rebounded from a low of $117.5 in April to $241 today. 

The stock moved above the key resistance level at $196.8, the upper side of the cup-and-handle pattern. It also formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other. 

The stock has formed a bearish divergence pattern as the Relative Strength Index (RSI) formed a series of lower lows and lower highs. Therefore, there is  likelihood that the stock will retreat and retest the support at $196, and possibly resume the uptrend.

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