Profiting from Oracle's AI Spending

Published on August 14, 2024, investors are increasingly wary of the risks associated with AI investments, particularly concerning revenue generation uncertainties, integration hurdles, and fierce competition from rivals boasting superior AI technologies. Oracle Corporation (ORCL) has recently seen its stock price dip below a critical support level of $135, which now serves as a resistance point. Analysts suggest that the stock is more likely to decline further rather than break through this resistance, as momentum indicators have turned negative. Despite Oracle's elevated valuation, trading at 30 times forward earnings—well above its historical median of 20 times—there are signs of a slowdown in contract acquisitions, even after securing significant deals with OpenAI and Fortune 500 companies. This tempered growth outlook raises concerns, especially as Oracle's expected earnings per share (EPS) growth rate of 14% pales in comparison to competitors like Meta (21%) and Amazon (37%). In light of these developments, some investors are considering options strategies to hedge against potential declines. A suggested trade involves buying October 18 $130 puts at $5.38 while selling $120 puts at $2.70, with a potential profit of $732 per contract if Oracle's stock falls below $120 by expiration. However, this strategy carries a maximum risk of $268 per contract if the stock remains above $130. This report serves as informational content and does not constitute financial advice or recommendations tailored to individual circumstances.