Down More Than 60% From Its High, Has Oracle Stock Become a Bargain Buy?

It wasn't that long ago that Oracle (NYSE: ORCL) was a top tech stock benefiting from the hype around artificial intelligence (AI). But that excitement has quickly turned to concern about elevated spending on AI, high debt levels, and perhaps too much dependence on OpenAI. The result: a stock that's now lost roughly half its value in the past 12 months.

Oracle, however, remains a big name in the tech sector, and it still has plenty of growth opportunities stemming from AI. With it now down over 60% from its highs, is now a good time to buy the stock?

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Oracle's big risk is that its investments won't pay off

When Oracle reported its latest earnings numbers last month, the business showed strong growth on both its top and bottom lines. But the bigger issue for investors is what lies ahead for the business, and whether all the spending on AI will prove worth it, especially given that one of its key customers is OpenAI, whose future doesn't look all that solid these days as it struggles with profitability and growing competition.

For the fiscal year ending May 31, Oracle's capital expenditures totaled $55.7 billion, easily more than double what it spent a year ago -- $21.2 billion. It also reported long-term liabilities of $176.9 billion, up from $114.7 billion in the prior-year period. The company continues to invest heavily in AI cloud infrastructure, with it projecting to raise $40 billion for the current fiscal year, through a combination of debt and equity.

This aggressive spending on AI has been a concern in the tech sector lately, and it has weighed heavily on Oracle's stock, particularly after the company signed a $300 billion cloud deal with OpenAI last year.

Is Oracle's stock cheap enough that it's worth the risk?

There is a risk that Oracle's aggressive investments in AI simply won't pan out as expected. But if a stock is trading at a low enough price, it can sometimes be a calculated risk for investors. Right now, Oracle is trading at a forward price-to-earnings multiple below 16 (based on analyst expectations), which is far less than the S&P 500 average of 22. It's also trading around where it was three years ago.

For long-term investors, Oracle's stock could make for a compelling buying opportunity today. With so much bearishness priced in, it could be a good contrarian pick up given its reduced valuation. While there may be some short-term risk, this is still a top tech company that generates strong profit margins, which is why I wouldn't be surprised if it recovers in the long run.

David Jagielski, CPA 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.