Oracle (ORCL) has experienced a steep decline in its stock price, losing nearly half its value since reaching a peak in September, as concerns over its debt levels and artificial intelligence (AI) commitments have unsettled investors. However, Oppenheimer analyst Brian Schwartz has taken a bullish stance on the company, upgrading its rating to ‘outperform’ and setting a $185 price target, which suggests a potential 22% upside from current levels.

Analyst Sees Potential for Strong Earnings Growth

Schwartz’s optimism is rooted in his belief that Oracle is relatively insulated from the AI-driven market turbulence that has impacted other tech giants like IBM and Datadog. He forecasts that Oracle’s earnings per share (EPS) could nearly triple by fiscal 2030 under his bull-case scenario, and even more than double in a base-case scenario. This, he argues, would place Oracle in the upper echelon of large-cap companies in terms of EPS growth.

‘These EPS growth trajectories, even after ing guidance, put [Oracle] in the upper echelon among large-cap companies for EPS growth,’ Schwartz wrote in a Wednesday note to clients. ‘As Oracle demonstrates superior EPS growth, it should catalyze better investor sentiment and trigger greater appreciation for the stock.’

Despite his positive outlook, Schwartz acknowledges that it may be premature to take a bullish stance on Oracle. He calls the stock a ‘show me stock,’ requiring consistent results to change investor sentiment. Concerns over Oracle’s need for cash to fund its ambitious data center spending plans are likely to persist, according to Schwartz.

Debt and AI Partnership Risks Loom Large

Oracle’s financial situation has drawn scrutiny, particularly due to its reliance on debt to fund its cloud infrastructure expansion. The company has amassed approximately $130 billion in debt and $248 billion in operating-lease commitments to support its growth plans. In December, Oracle announced plans to raise up to $50 billion this year through a mix of stock and debt offerings, which Schwartz notes has removed a near-term overhang on the stock.

However, private lenders are hesitant to back Oracle’s financing needs, according to Schwartz. He points out that financing risks have pushed Oracle’s credit default swaps to their highest levels since the Great Recession. This highlights the uncertainty surrounding the company’s ability to meet its financial obligations.

Investors are also wary of Oracle’s large partnership with OpenAI, a key player in the AI space. Schwartz notes that concerns over whether OpenAI can meet its own financial commitments have made investors hesitant to buy Oracle shares. OpenAI, meanwhile, aims to raise as much as $100 billion from investors, which could alleviate some of these concerns in the future.

Compared to other AI hyperscalers like Microsoft and Alphabet, Oracle has weaker cash flows and has relied heavily on debt to fund its spending plans. Oppenheimer estimates that Oracle will need to spend as much as $414 billion on data centers through fiscal 2030, highlighting the scale of its capital-intensive strategy.

What’s Next for Oracle and the Market?

With Oracle’s stock currently trading at a significant to its September peak, the company is now at a crossroads. The upcoming earnings reports and the ability to secure financing will be critical factors in determining whether the stock can rebound. Analysts will be closely watching Oracle’s performance in the coming quarters to see if the company can deliver on its growth promises.

Schwartz’s upgrade comes at a time when the broader market is grappling with the implications of massive AI spending by Big Tech. Oracle’s situation highlights the risks and rewards of investing in companies that are transitioning to capital-intensive models. As the AI landscape continues to evolve, Oracle’s ability to handle these challenges will be a key determinant of its long-term success.

The coming months will be key for Oracle as it seeks to reassure investors about its financial stability and growth potential. With a combination of debt financing, strategic partnerships, and strong earnings performance, the company may yet turn its current challenges into opportunities for long-term value creation.