Do not catch "the falling blade"! Analyst sings Oracle Corporation (ORCL.US) down after Q2 performance: stock price may continue to decline.

Oracle Corporation (ORCL.US) released its second quarter financial report on December 10, 2025, and its stock price subsequently experienced a significant decline. Financial analyst Envision Research published an article recently expressing their views on the stock, warning investors not to buy in at the current price dip. The analyst had previously published a commentary in September to remind potential investors to control FOMO (fear of missing out) and advised existing investors to consider hedging strategies such as buying put options when Oracle Corporation signed a new data center capacity contract with OpenAI. At that time, the analyst believed that Oracle Corporation's stock valuation seemed high, with a forward price-to-earnings ratio of 48 times and a price-to-earnings growth ratio of 3.3, significantly higher than major AI competitors like NVIDIA Corporation (NVDA.US) and Meta Platforms (META.US). In addition to valuation risks, aggressive capital expenditures and negative free cash flow also raised concerns about the company's execution capabilities. Potential investors should control FOMO, while existing investors may consider hedging with put options. Subsequently, the company released its second quarter fiscal report for the 2026 fiscal year, and the stock price experienced a significant decline. The drop may attract potential investors trying to buy low. Therefore, the analyst released a commentary to remind investors not to buy in during the current price dip. Based on the update from their second fiscal quarter report, there are still some concerning signs that may lead to continued price declines. The analyst mentioned three main concerns. First, the company's recent expansion has been largely debt-driven, especially through capital leases. Second, the company has halted its stock buyback program and become a net issuer of new shares, further raising concerns about the sustainability of its expansion. Finally, despite the significant price drop so far, the company's valuation still appears high by historical standards. Debt and Capital Leases Starting from the updated balance sheet after the second fiscal quarter, which is the first concerning aspect of Oracle Corporation's recent performance. According to the financial data detailed below, its long-term debt has significantly increased in recent years, from around $76 billion to nearly $100 billion. Even more concerning is the rapid growth of its total lease commitments, which have more than tripled in about three years, from around $6.2 billion to over $20 billion in the current quarter. These obligations mainly exist in the form of capital and operating leases for items like data center "shells" and hardware, such as NVIDIA Corporation GPUs. If major partners like OpenAI do not realize their expected AI demand as quickly as forecasted, these obligations will pose real long-term financial burdens similar to the long-term debt, increasing Oracle Corporation's financial risk. Stock Issuance and Dilution In addition to the debt issue mentioned above, Oracle Corporation's capital allocation strategy has also undergone a shift in recent quarters, indicating both a deterioration in its flexibility and unfriendliness to existing shareholders. For many years, the company has been a net buyer of its own stock, as can be seen from the cash flow statement below. Historically, the company has repurchased more shares than it has issued, leading to a decrease in outstanding shares from around 4.3 billion shares ten years ago to just 2.8 billion shares at the end of the 2025 fiscal year. However, this trend has reversed in the current fiscal year. As shown in the figure, in the past twelve months, Oracle Corporation has significantly reduced its buyback program to only about $506 million, while it has increased the issuance of new common stock (over $1.6 billion in the past twelve months). Therefore, the outstanding shares (on a weighted average common basis) have started to expand, increasing to 2.894 billion basic shares compared to 2.866 billion shares in the 2025 fiscal year. This dilution is occurring at a time of rising debt and significant pressure on cash flows, indicating that Oracle Corporation's stock issuance is not based on strength but on limited capital allocation flexibility. Other Risks and Conclusion Finally, despite the significant price drop, the stock's price-earnings ratio remains high both historically and compared to peers. The stock's trailing twelve-month price-earnings ratio based on non-GAAP measures is around 25.9 times, as shown below, exceeding its five-year historical median of 22.4 by over 15% and the industry average by about 10%. Additionally, the analyst is concerned that the above price-earnings ratio may underestimate valuation risks, as it does not consider the company's heavier debt burden relative to historical levels. For long-term investors thinking like business owners, debt is also part of their ownership. As a reflection, the chart below illustrates Oracle Corporation's valuation situation after adjusting for debt, particularly by comparing its enterprise value multiples to historical norms and industry benchmarks. Quoting a few numbers from this chart should clarify. As shown, the company's current trailing twelve-month Enterprise Value/EBITDA ratio is close to 24 times, exceeding its five-year historical median of 19.8 by over 21% and the industry median by approximately 29%, both indicating greater valuation risks than implied by the above price-earnings ratio. Other debt-adjusted valuation metrics, such as Enterprise Value/Sales and Enterprise Value/EBIT ratios, also roughly portray the same situation. Of course, the second quarter report also revealed some positive factors. Firstly, the company's key cloud division continues to show rapid growth (34% year-on-year growth in the second quarter report), which helps mitigate pressures on free cash flow and aggressive capital expenditures (primarily driven by borrowing and new stock issuances). Furthermore, Oracle Corporation reported end-of-quarter backlog (remaining performance obligations) of $523 billion, achieving another healthy strong growth of nearly 15% compared to the $455 billion reported in the previous article. Lastly, to mitigate the execution risks from its OpenAI deal, the company also provided commitment updates from other hyperscale customers such as Meta and NVIDIA Corporation. In summary, with the second quarter report of Oracle Corporation and the subsequent price/valuation decline, the analyst recently re-evaluated Oracle Corporation primarily to advise against trying to buy low at the moment, as there is a high likelihood of further downturns. Key concerns include increased debt (particularly through capital leases), stock issuance, and valuation risks (especially after debt adjustment). Given these concerns, it is advised that potential investors continue to be cautious for now.