Is Oracle Stock a Good Buy While It's Trading Below $150?

Oracle (NYSE:ORCL) is a stock that I knew would have tremendous potential due to artificial intelligence (AI), as demand for its databases would be significant. More computing is being done in the cloud, and Oracle’s business should stand to benefit significantly from these opportunities.

While the stock soared 58% in 2024 and would continue rising the following year, it's been a much different story this year. It's down 26%, and trading at well under $150 -- nowhere near its 52-week high of more than $322.

Could now be a good time to buy the stock, or is Oracle still likely heading lower?

Oracle's business has been booming

Last month, Oracle reported its latest earnings numbers, which were incredibly strong. Its revenue rose by 30%, and its unadjusted per-share profit was up by 55%. On top of that, the company also said that it achieved triple-digit growth in its cloud infrastructure business.

With a performance like that, the tech stock should be soaring. But it isn't. It's a sign that investors are worried about other factors, such as its high debt load, and also its close relationship with OpenAI, whose ability to post a profit and pay all its bills is weighing on the minds of many investors these days. The concerns are valid, and they reinforce the need for investors to consider more than just earnings multiples, sales growth, and profits.

OpenAI, for instance, accounts for around $300 billion of Oracle's backlog, which is a significant chunk. That creates a cloud of uncertainty as to how strong Oracle's future growth may be; the company's overall remaining performance obligations are $664 billion. Thus, investors who are not confident in OpenAI's ability to succeed may be less likely to take a chance on Oracle's stock.

Is Oracle's stock cheap enough to make up for these risks?

When there are risks involving a business, investors will demand a discount; otherwise, they'll look elsewhere. Oracle's stock has been sliding due to the risks it poses, and it's now trading at less than 23 times its trailing earnings. Based on analyst projections, it's trading at about 18 times its estimated future profits, which is slightly less than the S&P 500 average of 20.

Overall, I don't think there's enough of a discount there to make Oracle's stock worth buying. It would need to fall further for it to be a compelling buy, given its close ties to OpenAI and the associated risk. There are far better tech stocks to buy than Oracle right now, which is why I'd pass on it.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.