Oracle (NYSE:ORCL) has not exactly gone “to the moon,” but Oracle stock has certainly racked up some solid gains since the start of the year. Shares in the software giant are up by around 16.6% year-to-date.
A big driver of these gains for ORCL has been rising acknowledgment of Oracle’s AI potential. Over the past few months, through its recent fiscal performance, plus a spate of announcements and partnerships, Oracle has made it clear that it stands to benefit greatly from this growth trend.
That said, investor enthusiasm for this catalyst seems to have leveled off. Worse yet, it’s just recently come out that a widely followed investor has exited his ORCL position. So, does this all mean that shares have topped out, and it’s time to sell? Not so fast! Here’s why.
Oracle Stock: Trading Sideways Despite the Promising News
As Louis Navellier and the InvestorPlace Research Staff pointed out earlier this month, Oracle has conveyed to the market that it is an AI contender. For one, the AI growth trend has already had a material impact on Oracle’s operating results.
Thanks to booming AI-related demand, Oracle’s Cloud Infrastructure segment reported strong year-over-year growth of 49% during the overall company’s fiscal third quarter. Alongside this, the software giant has made additional moves that indicate that it intends to capitalize further on this trend.
In particular, with its announced plans to collaborate with Palantir Technologies (NYSE:PLTR). This partnership will make Palantir’s software platforms available through Cloud Infrastructure. Interestingly enough, however, news of this and other, more recently-announced partnerships, has led to little in the way of further gains for ORCL stock.
Rather, shares have traded sideways since Oracle’s last quarterly earnings release in March. Yes, as “AI mania” has cooled down during this time frame, it’s not a complete shock that ORCL has performed this way in recent months.
However, as hinted above, there may be some stock-specific developments that are playing a role as well. Still, don’t assume this means you need to follow the market’s lead.
Michael Burry’s Selling Shouldn’t Cloud Your View
The “stock-specific development” hinted at above is his month’s news that famous investor Michael Burry’s Scion Asset Management sold the entirety of its ORCL stock position during the quarter ending March 31, 2024.
Because of Burry’s strong investing track record, the market is always interested in his latest portfolio changes. Yet while at first it may seem like a full position exit is a bearish mind, keep something in mind: it’s not uncommon for Scion to make short-term trades in large stocks.
Burry’s fund acquired its Oracle position during late 2023. It’s possible that Burry bought in at the low-$100s, and took a fast profit during the late February/early March wave of “AI mania,” which briefly sent ORCL to as much as $132.77 per share.
If this were a position that Burry held for quite some time, before all of a sudden taking profit, there would be greater cause for concern.
In short, don’t let this recent selling from a prominent investor cloud your view on Oracle. Instead, base a decision on the company’s fundamentals and valuation. Based on where they stand now, there’s good reason to stay bullish.
Hold on Tight, Ahead of Additional AI Upside
Since April’s Palantir news, additional developments that bode well for growth have arrived. A good example is with a possible $10 billion cloud server deal with xAI, for the Elon Musk-backed AI startup.
Considering the Palantir and xAI deals, forget about Oracle merely meeting growth expectations over the coming fiscal year ending May 2025. Growth could come in near the high-end of sell-side forecasts, which call for revenue growth of around 9.1%, and earnings growth of as much as 20.2%.
Besides the strong likelihood ORCL rises in tandem with this growth acceleration, it may also justify a rerating to the upside for shares. The stock’s forward valuation could move up, from 22 to the high-20s/low-30s, in line with other fast-growing, AI-focused tech companies.
Bottom line: Burry may have had his reasons for selling Oracle stock, but you have much reason to hold onto or enter a position.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
