Why Oracle Stock Zoomed 39.9% Higher in May
Key Points
Oracle is rebounding alongside its key infrastructure partner, OpenAI.
The company's AI revenue is growing quickly, but is still much smaller than that of other cloud players.
The stock looks risky at the moment.
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Shares of Oracle (NYSE: ORCL) shot up 39.9% in May, according to data from S&P Global Market Intelligence. After rising to over $300 a share last summer, Oracle's stock tumbled in the ensuing quarters, falling below $150 in April amid continued concerns about its partner, OpenAI, and its market-share struggles.
Since then, it has been all sunshines and rainbows for the enterprise software and database provider that is transitioning to a cloud infrastructure player for artificial intelligence (AI). Here's why Oracle stock made a comeback in May, and whether now is a good time to buy shares for your portfolio.
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Betting big on OpenAI spending
Known for decades as a provider of enterprise software and database solutions, Oracle has recently pivoted to become an infrastructure provider for AI companies, specifically OpenAI. Its cloud infrastructure revenue grew by 81% in constant currency last quarter to $4.9 billion, which is rapid growth but still well below that of other AI cloud players like Amazon.
OpenAI is a key partner with Oracle, contracting for a large chunk of the business's $553 billion in remaining performance obligations, which grew 325% year over year last quarter. With all these spending plans, investors were concerned about liquidity at OpenAI as it struggled against competitor Anthropic in early 2026.
This, in turn, spooked investors in Oracle, which is building data centers to help power OpenAI's systems. If OpenAI cancels these contracts, Oracle's business might be in trouble since it used massive amounts of debt to fund its infrastructure plans.
OpenAI turned a corner this Spring by raising new funds, planning for an IPO, and settling investor nerves with management claiming it is on track with its revenue targets this year. This is great news for Oracle, and why the stock rose in May along with the rest of the AI trade.
Image source: Getty Images.
Is Oracle stock cheap?
Right now, Oracle's stock trades at a price-to-earnings ratio (P/E) of 41, with $125 billion in long-term debt on the balance sheet. The company needs its partner OpenAI to keep growing revenue at an exponential rate while simultaneously raising tens of billions of dollars in its rumored IPO this year. That way, OpenAI will have the money to pay Oracle for its data center compute. If not, Oracle's remaining performance obligations will go up in smoke.
So no, Oracle is not cheap, and it poses significant risks for investors. Stay away from the stock unless you are confident it can be a winner in the AI race.
Should you buy stock in Oracle right now?
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.
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