Investing.com – Piper Sandler reduced the rating of Oracle (NYSE: ORCL) from overprain to neutral in a note published on Wednesday, citing concerns about the pressure on the margins and the increase in capital expenses while the company increases its investment in the cloud infrastructure business.
The firm also reduced its objective price for Oracle shares from 190 to 130 dollars.
Piper Sandler analysts recognized Oracle’s recent impulse in artificial intelligence work loads, particularly through their business Oracle Cloud Infrastructure (OCI).
“OCI has managed to establish a differentiated role as the preferred platform for large -scale GPU clusters, with an increasing number of AI clients, including goal (Nasdaq: Meta), Uber (Nyse: Uber), XAI, Luma Ai, Suno and Baseten,” the analysts wrote.
However, they warned that the rapid growth comes higher costs. “With a large portfolio of orders comes a great responsibility,” said the note, aiming at an increase of 48,000 million dollars in the quarterly orders portfolio that raised the remaining performance obligations to 130,000 million dollars, an increase of more than 60% compared to the previous year.
To meet the demand, Oracle expanded its regions of client -oriented data centers from 69 to 101 during the last year, says Piper Sandler.
The firm warned that fiscal year 2026, which begins in June, is emerging as “a year of high growth and investments.”
The firm estimates that Oracle’s capital expenses could increase more than 50% year -on -year to 24,000 million dollars, potentially consuming “almost 100% of possible operating cash flows.”
Although it maintains a positive long -term vision, Piper Sandler said he stays out for now.
“We are still optimistic about Orcl’s opportunity in the next 3-5 years, but we stay on the sidelines before fiscal year 2026 that we see as a year of investment,” analysts wrote.
The reduction also reflects a change in the assessment methodology, with Piper now focusing the attention on the operating cash flow instead of the free cash flow for models with high capital expenditure such as Oracle.
