Reasons Behind Oracle’s Underperformance Compared to Amazon, Microsoft, and Alphabet

Key Points

• Oracle’s stock (NYSE: ORCL) dropped 11.4% in July, highlighting its underperformance compared to AI peers.

• In July, Oracle secured a $7 billion 10-year software deal with the Pentagon and an expanded partnership with Alphabet, incorporating Google’s Gemini AI models.

• Oracle’s credit rating was downgraded to BBB- due to concerns surrounding its reliance on OpenAI, which could comprise about half of its $638 billion remaining performance obligations.

Oracle’s stock has struggled amid a broader decline in AI-related stocks, remaining a laggard among major hyperscalers such as Alphabet, Microsoft, and Amazon since June 2023. Concerns over its balance sheet, exacerbated by heavy investments in AI infrastructure, continue to weigh on investor confidence. Notably, Oracle has a $300 billion 5-year agreement with OpenAI, set to start in 2027, which has led to skepticism in the credit markets as indicated by soaring credit default swap prices.

Despite these challenges, Oracle recently secured a significant $7 billion contract with the Pentagon, demonstrating its capabilities beyond AI computing. Additionally, its collaboration with Alphabet enhances its enterprise offerings, incorporating advanced AI models that may bolster customer retention. Analysts remain cautious, as Oracle’s stock remains excluded from lists of top recommended stocks despite its strategic advancements.