Oracle Overvalued Despite AI Investments Boosting Growth Forecasts, Analysts Say

Oracle’s heavy investment in AI boosts growth forecasts, but analysts caution that the stock may be overvalued.

Oracle Corp. (NYSE: ORCL) is significantly investing in artificial intelligence (AI) infrastructure, driving optimistic growth forecasts. Despite this, analysts argue that the stock is currently overvalued and express doubts about Oracle’s likelihood of leading in artificial general intelligence (AGI) development.

Recent operational developments highlight Oracle’s strategic moves. The company has formed a notable partnership with Palantir (NYSE: PLTR), integrating its AI platforms with Oracle Cloud Infrastructure (OCI). This collaboration aims to bolster Western defense capabilities and address regulatory, performance, and security requirements in large-scale AI deployments.

Oracle also faced a setback with the cancellation of a potential $10 billion deal with Elon Musk’s xAI, which opted to build its own data center with Nvidia (NASDAQ: NVDA) chips instead. This decision contributed to a 3% drop in Oracle’s stock price. Nevertheless, Oracle maintains significant cloud AI contracts, including one with OpenAI.

Positively, Oracle has added new Nvidia GPUs on OCI to its lineup of AI services. Its support for up to 65,000 GPUs in an OCI Supercluster and the integration of Nvidia L40S and H100 Tensor Core GPUs improves its capacity for training large-scale AI models and expands access to AI technologies.

Government clients are drawn to Oracle because of its focus on state AI solutions, which guarantee data stays inside national borders. Despite the fact that Oracle needs to make large investments in AI to remain competitive, analysts advise cautions given its current high value.