Is the surge of 370 billion a flash in the pan? Oracle Corporation (ORCL.US) AI conference becomes a key validation moment.

Oracle Corporation (ORCL.US) will have the opportunity this week to prove to investors that its stock price increase of approximately $370 billion this year has a solid foundation. The software manufacturer unveiled its four-day "AI World Conference" in Las Vegas on Monday. The focus of the conference will be on Oracle Corporation's cloud computing business - the rapid expansion of this business has driven its stock price up 76% this year, making it one of the top-performing components of the S&P 500 index for 2025. The conference comes at a time when the market is concerned that Oracle Corporation may be sacrificing profits to rent computing power to AI companies such as OpenAI. Last week, media reports indicated that Oracle Corporation's cloud business profit margins were lower than what most on Wall Street had expected, leading to a 7.1% intraday drop in its stock price on Tuesday. Although the stock quickly recovered, doubts about its business profitability persist. Oracle Corporation had predicted that the revenue of this business would increase by 700% over the next three fiscal years. Mark Matiacek, Senior Partner and Financial Advisor at Bodeux Consultants, said, "There are indeed investors who are concerned about profit margins, or who think that their goals are too aggressive. This is an opportunity for Oracle Corporation to dispel these concerns, as many skeptics believe that their valuation is too high, especially if their significant collaboration with OpenAI fails to generate sustained revenue." Bodeux Consultants' parent company manages assets of approximately $1.5 trillion. Wall Street is eagerly anticipating Oracle Corporation's AI World event. The agenda for Tuesday will include a keynote speech by newly appointed Co-CEO Mike Sicilia, and founder and Chief Technical Officer Larry Ellison will also be speaking. Ellison's holdings in Oracle Corporation briefly made him the world's wealthiest person last month. The Investor Day on Thursday is expected to reveal the latest financial targets. Wall Street has high expectations for this event. Siti Panigrahi, an analyst at SMBC Nikko Securities, stated in a report that this conference will be a "significant catalyst, and the company is expected to address many controversies," particularly regarding profit margins. Bernstein analyst Mark Modler expects that "more details will help alleviate some doubts." The surge in demand for cloud computing has boosted Oracle Corporation's overall sales, but the significant costs associated with expanding these services have eroded profits. Data shows that Oracle Corporation's revenue growth for this fiscal year is expected to surge from 8% in the previous year to 17%, but the gross profit margin is expected to decline by over 2 percentage points to 68.4% after deducting operating expenses. In the 2021 fiscal year, its gross profit margin exceeded 80%. The rapid growth has solidified Oracle Corporation's position as a winner in AI. The company reached a cloud computing agreement with OpenAI in September reportedly worth $300 billion over five years, and its blockbuster financial report on September 10 led to a single-day surge of 36% in its stock price. However, the soaring stock price has also sparked concerns of a bubble - its valuation has reached its highest level since the dot-com bubble over two decades ago. Data shows that, based on expected profits for the next 12 months, Oracle Corporation's price-to-earnings ratio is approaching 41 times, which is more than twice its ten-year average and significantly higher than the price-to-earnings ratios of the other seven major tech giants apart from Tesla, Inc. Expectations for free cash flow to plummet this year In addition to profit margins, investors are also concerned about the expenses required to expand Oracle Corporation's cloud computing capabilities. As of the 2026 fiscal year ending in May, Oracle Corporation's capital expenditures are expected to reach $35.4 billion, a 67% increase from the previous year. Therefore, after experiencing a negative free cash flow for the first time since 1990 last year, a negative cash flow of $9.8 billion is expected for this year. Of course, AI investors still have reasons to remain optimistic: Microsoft Corporation's cloud business struggles to meet strong demand, Dell Technologies, Inc. Class C's tech due to AI expectations raising future revenue and profit growth guidance, and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's strong sales performance in September. However, Gene Monst, Managing Partner at Deepwater Asset Management, pointed out that the interconnectedness of AI giants means that any signs of weakness or excessive sentiment in one company could drag down the entire sector. "If one falters, all suffer, and the entire trading logic could collapse," Monst said, "Oracle Corporation has just entered the AI narrative, but before the earnings season, this conference will reveal whether we are still at the beginning of the AI trading cycle or if this is the beginning of the end."