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Investing.com - Erste Group downgraded Oracle (NYSE:ORCL) stock rating from Buy to Hold on Monday, a move that aligns with InvestingPro data showing the stock trading at a high P/E ratio of 56.29.
The research firm cited Oracle’s significant investments in cloud infrastructure as a factor in the rating change. The company has been expanding its cloud offerings with new data centers and is achieving notable growth in this segment, contributing to its 9.67% revenue growth over the last twelve months.
Erste Group noted that Oracle’s traditional software business recorded a slight decline, creating a contrast with its cloud performance. The firm expressed concern that the high level of investment has led to a sharp rise in non-current liabilities, reflected in Oracle’s total debt of $111.62 billion and a concerning current ratio of 0.62.
The downgrade also reflects Erste Group’s observation that Oracle’s return on assets is declining. InvestingPro data confirms this concern, showing a return on assets of 7.66%, which suggests changing efficiency in how the company converts its investments into profit.
Erste Group expects Oracle’s free cash flow growth to be impacted by these substantial investments, with the operating margin likely to fall slightly over the next few years. This aligns with current negative levered free cash flow of $5.88 billion and a PEG ratio of 4.86, suggesting the stock may be overvalued relative to its growth prospects.InvestingPro offers 16 additional investment tips for Oracle and comprehensive analysis in its Pro Research Report, available for over 1,400 US stocks. These reports transform complex Wall Street data into actionable intelligence for smarter investing decisions.
In other recent news, Oracle Health and Life Sciences has formed a strategic alliance with the Cancer Center Informatics Society (Ci4CC) to advance artificial intelligence in oncology care and research. This collaboration aims to integrate clinical and genomic data for personalized medicine and develop AI-driven approaches for clinical trials. Oracle also announced plans to launch a new platform called Digital Assets Data Nexus, which will enable banks and financial institutions to manage blockchain-based digital assets. This platform will support both permissioned and public blockchains, including Hyperledger Fabric and Hyperledger Besu.
In another development, credit traders are purchasing increased protection against Oracle defaulting on its debt as the company continues to invest heavily in AI infrastructure. Meanwhile, UBS has reiterated its Buy rating on Oracle, setting a price target of $380. The UBS analysis, following the Oracle AI World event, noted that most customers plan to expand their investments in Oracle, with partners reporting accelerated growth rates. Additionally, the U.S. Treasury announced that China has approved the transfer agreement for TikTok, expecting the agreement to progress in the coming weeks.
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