Oracle Has a Massive Revenue Backlog: Why is the Stock Plunging?
Oracle (NYSE:ORCL) stock remains in a steep freefall, wiping out billions of dollars in market value and emerging as one of the worst-performing stocks in the Nasdaq 100 Index this year.
The shares fell to $121.50 this week, their lowest level since April last year and 64% below their all-time high. The sell-off has come despite the company’s record backlog and the ongoing artificial intelligence (AI) boom.
Oracle Has a Record Backlog, But Financing Costs are Concerning
Oracle, one of the largest companies in the technology sector, has emerged as one of this year’s biggest laggards. As a result, co-founder Larry Ellison‘s net worth has fallen by more than $66 billion this year to $181 billion.
The ongoing ORCL stock retreat is happening despite the company’s business doing well amid the AI boom. Its recent earnings report showed that its Remaining Performance Obligations (RPO) jumped by $85 billion in the fourth quarter to $638 billion. RPO is a figure that represents its revenue backlog.
The results also showed that quarterly revenue rose 21%, while full-year revenue climbed to $67 billion. These figures indicate that the business continues to perform strongly. According to Benzinga data, analysts expect annual revenue to increase to $89.2 billion this year and $130 billion next year.
The primary reason behind Oracle’s stock sell-off is its rapidly rising debt burden. In its latest guidance, the company said it expects to raise more than $40 billion through a combination of debt and equity this year.
As a result, its total debt has surged, pushing up borrowing costs. For example, the yield on its 2052 bonds has climbed to 7.6%, while the yield on its 2050 bonds has risen to 7.34%, reflecting investors’ growing demand for higher returns to hold the company’s long-term debt.
There are also concerns about the health of its backlog, with OpenAI accounting for nearly half. As such, investors are worried that OpenAI may decide to scale down its deals as it eyes an initial public offering (IPO) and as its growth slows.
Still, on the positive side, the ongoing Oracle stock retreat has made it a highly undervalued company. Its forward price-to-earnings ratio has dropped to 15.7, much lower than the technology sector median of 24. Also, the stock is much lower than the average analysts’ forecast of $268.
Oracle Stock Dropped Below a Key Support
The daily chart shows that ORCL stock dropped below the crucial support level of $136, its lowest level in February and April this year. This retreat confirmed the bearish outlook.
The stock remains below the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index has slumped to the oversold level of 30.
Therefore, the path of the least resistance is downwards for now. If this happens, it may drop to $100, before bouncing back, possibly later this year or in 2027.
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