Investing.com -- Bernstein reiterated its Outperform rating and $325 price target on Oracle (NYSE: ORCL) shares in a note on Tuesday, telling investors that the company's economics are better than it previously thought after updating its 10-year model.
"Oracle has been the most controversial stock in our coverage," analyst Mark Moerdler wrote. "It has also generated the largest amount of in-bound calls in our coverage as investors see the potentiality of the stock but are still working to understand the likelihood and timing."
Bernstein's updated model incorporates management's recent disclosures and guidance. The firm concluded that Oracle will not need additional funding and is about 18 months away from generating positive free cash flow, after which it expects increasingly strong cash generation.
Moerdler highlighted two potential catalysts. The first is OpenAI's initial public offering, which he believes will add significant clarity on whether OpenAI and the broader generative AI industry can pay for the computing capacity they have committed to.
The second is Oracle's return to positive free cash flow by the second half of fiscal 2028.
As investors worry that AI will disrupt software companies, Bernstein argued that Oracle should be a go-to name, given both its AI data center business and its core database business, which it also sees as an AI winner.
"We believe the upside potential far outweighs the downside risk," Moerdler said. "As additional data and clarity is supplied over the next few quarters the stock should rebound, in our view."
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