Why Oracle Stock Dropped Today

I hate to say I told you so, but in a column Tuesday, I warned "Oracle stock is probably not worth its present 75x earnings valuation." Now Rothschild & Redburn analyst Alex Haissl has initiated coverage of Oracle (ORCL -3.55%) stock -- and Haissl says it's a sell. Oracle stock is down 4.4% through 10 a.m. ET. Image source: Getty Images. Why this analyst doesn't like Oracle stock In a note covered on The Fly, Haissl argues the market "materially overestimates" how much revenue Oracle will bring in from its cloud computing business (which is to say, its business supporting OpenAI's artificial intelligence operations). Oracle predicts this business will grow to $60 billion annually, or more than all Oracle's revenue from all its various businesses today -- from a single division. Investors love the idea, and it's helped lift Oracle stock high. But Haissl warns this "risky blue-sky scenario ... is unlikely to materialize." Result: Oracle stock, which closed above $308 yesterday, could fall as low as $175 within a year. Is Oracle stock a sell? Could Haissl be wrong about that? Could I? Absolutely. Oracle is making massive investments in popular artificial intelligence (AI) infrastructure. Assuming they pay off, analysts polled by S&P Global Market Intelligence forecast Oracle could earn more than $13 a share in 2030, and generate nearly $19.2 billion in annual free cash flow -- more money than Oracle has ever earned before. Still, Oracle stock is valued at $840 billion today. Assuming the forecasts are accurate, Oracle stock costs more than 22 times profit it might (or might not) earn five years from now, and costs 44 times 2030 free cash flow. And that's the price you must pay to own Oracle today, long before you know if Oracle's AI bets will pay off. Oracle's too expensive. For me, that makes Oracle stock a sell.