Oracle (ORCL) is back on investors' radar after Wisconsin regulators upheld rules that could require more than US$7b in financial guarantees for the company’s planned AI focused data center project.

Oracle’s share price has come under sustained pressure, with the stock down 34.1% on a 30 day share price return basis and 38.0% year to date, even though the 5 year total shareholder return of 47.8% remains positive. This suggests long term holders have still seen gains while recent selling reflects concern about AI related spending, debt and new regulatory requirements like the Wisconsin guarantees.

If you are watching how AI infrastructure stories unfold and want to see what else is moving, it could be a good time to scan 54 AI infrastructure stocks

So is Oracle now a classic value setup, where heavy AI and data center spending fears already sit in the price, or is the stock rightly pricing in higher funding and execution risk? The valuation work comes next.

Most Popular Narrative: 37% Undervalued

According to the most followed narrative on Oracle, the stock’s last close of $121.38 sits well below an assessed fair value of $192.59. This frames the current AI spending debate very differently from the recent share price slide.

To calculate the intrinsic value of the company I'll use multiple methods:

• Discounted Cash Flows (DCF): Intrinsic value is estimated by projecting its free cash flows over the next 10 years and discounting them to present value using the estimated cost of capital.

• EPS Growth: The fair value is estimated by projecting the Earnings Per Share CAGR for the next 5 years and then, given its current and historic values of PE, coming up with a PE for the 5th year. This will give us its price 5 years from now using the formula Price = EPS x PE, which is then discounted using the estimated cost of capital.

• Historical P/S: We assume mean reversion to the historical P/S values.

• Historical EV/EBITDA: We assume mean reversion to the historical EV/EBITDA values.

• Historical P/E: We assume mean reversion to the historical P/E values.

Want to see what is behind that $192.59 figure for Oracle? The narrative combines assumptions about revenue expansion, margins and profit multiples into one detailed set of inputs that you can review for yourself.

Result: Fair Value of $192.59 (UNDERVALUED)

However, Oracle’s high estimated cost of capital and very high uncertainty rating mean that shifts in AI demand, regulation, or funding costs could quickly challenge that 37% undervalued narrative.

Next Steps

With sentiment on Oracle clearly split between concern and optimism, it makes sense to move quickly, review the full data set, and weigh both sides using 4 key rewards and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.