Oracle was really the first piece of the AI puzzle to fall last year when the correction started across the industry in October.
With the stock down more than 50% from its highs in just a few months, negative news is likely baked in, which leaves the upside very strong if they surprise us with positive news.
Oracle's earnings have been solid and it's a vital player in the internet ecosystem. They're spending a TON of money in an attempt to be just as vital in the AI stack, but this has backfired on them as they took on debt to finance their projects. Hyperscalers like Amazon, Meta, Microsoft are also spending billions on data centers, the difference is Oracle doesn't necessarily have the free cash to finance it. The company's free cash flow is at -$13 billion in the last quarter.
As for spending CapEx jumped from $6.9B to $21.2B in 2025, and that is projected to potentially double again this year. Oracle's long term borrowing is over $100 billion
While that's a big headwind in the near term, Oracle is signing decade+ long contracts that the company hopes will cover their costs.
Think of Oracle and all these companies building data centers as similar to electricity providers. They spend a ton of money using debt to build out the infrastructure, but then it becomes a steady and predictable source of revenue for them in the future....BUT this assumes that AI demand stays strong.
Looking at its most basic evaluation method of "how expensive" it is as a stock, Oracle's price to earnings (P/E) ratio is 29x, which is aligned with names like Google, Microsoft, Apple, Meta, and Amazon.
Almost all these companies are trading around the same P/E, which is relatively low. Meanwhile, Nvidia trades at a P/E of 36x. What does this tell us? It tells us that investors are not willing to pay top dollar for hyperscalers and data center buildouts right now. Companies that are providing the pieces needed for those buildouts are performing, but investors are awaiting results of data center buildouts (particulary a path to revenue) before paying a higher premium. This is an oppotunity to buy into these stocks before that happens...hence why we're holding TQQQ.
As for Oracle in particular. The IV ratio between calls and puts is 1.82, which is very expensive. That means the market is expecting a big move. The March 20th exp reflects an IV reading of 97.75%, which is about (+/-) 19.70.
I would buy Oracle shares here before earnings because I don’t mind buying “stuck” in a quality names like this until it comes around, but options are a bit expensive. Buying at these prices risks a premium crush if Oracle doesn’t move as expected.
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