Why Did Oracle Stock Drop Today?
Key Points
Mizuho analyst Siti Panigrahi reiterated an "outperform" rating on Oracle stock this morning.
The analyst sees Oracle making progress on Project Jupiter.
Oracle's cash reserves should suffice to cover one more year of cash burn before being exhausted.
Oracle (NYSE:ORCL) stock tumbled an unlucky 7% through 10:10 a.m. ET this morning -- and here's the weird thing: It did this right after Mizuho analyst Siti Panigrahi reiterated his "outperform" rating on the stock and confirmed he still thinks Oracle shares are worth $320.
But the stock only costs $133 today!
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Image source: Oracle.
Mizuho still loves Oracle stock
That's a strange reaction to a buy rating, I must say. So how do we explain it?
According to Panigrahi, Oracle is making "continued construction progress" on its Project Jupiter -- the gigantic AI data center it's building in the New Mexico desert for $165 billion. It has proposed rerouting the gas pipeline that supplies power to the data center (via Bloom Energy fuel cells) to avoid restarting its environmental review.
The analyst is optimistic this effort will succeed, but notes that investors will need to wait for further updates on Oct. 28.
What's next for Oracle
Problem is... investors don't seem interested in waiting. They're selling first and asking questions later.
Why? As StreetInsider.com reminds us today, Oracle recently suffered a credit rating downgrade to BBB- (one notch above "speculative") on worries that the company is spending too much on capital investment to build Project Jupiter, with little revenue to offset its costs. OpenAI isn't required to make payments for the data center before 2027, and Oracle's cash situation could look tenuous in the meantime.
S&P Global Market Intelligence data show Oracle with $37.1 billion in cash currently, burning nearly $29 billion a year, and at risk of needing to add to its $169.1 billion debt load. Mizuho may be right that the stock will be undervalued. The question is whether Oracle can survive long enough for investors to realize that value?
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy and Oracle. The Motley Fool has a disclosure policy.