Is Oracle the First of the AI Bubbles to Pop?

Tech giant Oracle Corporation (NYSE: ORCL) has gone from being one of the biggest beneficiaries of the artificial intelligence (AI) rally to one of its most notable casualties.

After surging to more than $345 last September as the AI boom picked up pace, the stock has since fallen to just above $140, having endured a relentless decline of almost 60%.

It goes without saying that the original rally and the subsequent fall from grace didn’t happen in a vacuum. 

Rather, it was driven by aggressive investor positioning around AI infrastructure, with Oracle increasingly viewed as a core beneficiary of surging demand for cloud and enterprise AI workloads.

Expectations were hyped to the max last September, and the stock duly followed. Now, that same dynamic is working in reverse, and it inevitably raises some big questions, like is Oracle potentially the first major AI name to see its bubble burst, or has the market simply overcorrected and created a compelling entry opportunity?

Let’s jump in and take a look. 

The Bear Case Is Hard to Ignore

From the outside, the bear case writes itself. Throughout last summer and into the early fall, Oracle was swept up in the broader AI enthusiasm that was widespread at the time. However, in the months that followed, some awkward questions began to be asked, raising genuine concerns about the company’s strategy. For example, to take advantage of the opportunity at hand, Oracle has had to aggressively invest in AI infrastructure, particularly in cloud and data center capacity, which requires significant capital.

Last month’s report that the company was planning to raise upwards of $50 billion to build additional capacity was met with skepticism rather than excitement, the general attitude being that spending is running too far ahead of returns.

Broader market dynamics have amplified that concern. Rising yields and a dwindling appetite for risk in recent weeks have made investors less willing to pay for long-duration growth stories, particularly those with heavy upfront investment requirements.

In that context, Oracle’s selloff looks less like an anomaly and more like a reflection of a shifting market environment. If the AI trade continues to unwind amid high investor skepticism, it wouldn’t be all that surprising to see some of its peers come under pressure as well. 

But the Outlook is Still Bullish

At the same time, however, there’s a decent counterpoint to that narrative, specifically for Oracle. That’s because despite the relentless share price decline, Oracle’s recent earnings reports have been landing ahead of expectations, and recent analyst updates are leaning bullish. 

The likes of Bank of America, for example, rated the stock a Buy this week, echoing similar moves from Mizuho, Guggenheim and Citigroup earlier this month. There’s a consensus that the more bearish concerns should be easing following the last earnings report. 

Taken together, these updates suggest that while sentiment around the stock has deteriorated sharply, the upside potential hasn’t exactly disappeared. Especially when you consider that some of the more recent price targets range up to $400, suggesting 185% upside from current levels.

It’s also worth noting that Oracle isn't trying to win the AI race the way some hyperscalers are. Instead, it is positioning itself as a critical infrastructure layer, providing the cloud capacity and enterprise software backbone that AI applications rely on. That’s an important distinction because while it may not command the same headlines, it does mean Oracle can benefit from broader AI adoption regardless of which platforms or models ultimately come out on top.

If that thesis holds over the coming months, the current pullback will look more like a sentiment reset than a full-on breakdown. 

The Next Move Will Come Down to Confidence

Looking ahead, the key driver for Oracle’s stock will not be whether AI is important, but whether investors believe the company can convert that opportunity into sustainable growth. That makes the next earnings report in June all the more critical. However, considering the stock has already given so much of its AI-driven gains, expectations are significantly lower than they were just a few months ago.

If Oracle shares can stabilize around a support level in the coming weeks and then deliver a decent report, it would go a long way toward reinforcing confidence in its growth trajectory. On the other hand, any sign that growth is faltering or that spending is not translating into returns would reinforce the bearish narrative and keep pressure on the stock.

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The article "Is Oracle the First of the AI Bubbles to Pop? " first appeared on MarketBeat.