Amid fears that Oracle (ORCL) could raise as much as $100B in debt to fund its ambitious artificial intelligence endeavors, investment firm BNP Paribas believes the number is much smaller than that.
“We estimate 'only' an additional $25 to 30B is needed to fund Oracle's infrastructure build,” BNP Paribas analyst Stefan Slowinski wrote in a note to clients. Slowinski said the new $25B to $30B in debt is needed in addition to the recent $18B issuance, but it's markedly lower than some investors have feared.
“Given [Oracle Cloud Infrastructure] carries high cash margins, we believe the company can withstand a higher debt-load and management could also pursue alternative financing options (such as vendor financing) to mitigate upfront cash outlays,” Slowinksi added. He has an Outperform rating on Oracle but lowered his price target to $290 from $430, due in part to higher capital spending and changes in foreign exchange rates.
In addition, Slowinksi said the market is currently pricing in only “minimal upside” from Oracle's partnership with OpenAI (OPENAI), including its $300B data center capacity deal.
“We calculate ~84% of Oracle's current valuation is now underpinned by its non-AI segments,” Slwoinksi added. “We see [Oracle Cloud Infrastructure] potentially contributing ~$13 of EPS by FY30 by our estimate, suggesting there's asymmetric upside if Oracle can deliver even close to its [Oracle Cloud Infrastructure] targets.”
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