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Shares of Oracle (NYSE:ORCL) have underperformed the broader market this year, dropping 33% as of this writing, but the company appears poised for a strong finish.
The artificial intelligence (AI) infrastructure giant held its Investor Day on Oct. 28, and its shares surged 11% in a single session due to its impressive long-term outlook. Of course, Oracle has given back its gains amid the brutal market sell-off. However, the company sees impressive growth acceleration through fiscal 2030, which explains why investor confidence in <a href="https://www.fool.com/investing/how-to-invest/stocks/oracle-stock-forecast/?utm_source=yahoo-host-full&utm_medium=feed&utm_campaign=article&referring_guid=32634a85-8b9e-409e-a41a-6b5801aacc5f" rel="nofollow noopener" target=”_blank”>Oracle stock is likely to improve.
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Let’s take a closer look at Oracle’s guidance through fiscal 2030 and see why this stock is poised for a major turnaround.
Oracle’s Investor Day presentation has eased concerns about its balance sheet
The primary reason for Oracle’s underperformance this year is its debt. It has been raising money through debt and equity issuance to fund the aggressive build-out of data centers that handle AI workloads. As a result, the company’s free cash flow has declined sharply over the past year and a half.
However, Oracle estimates that it will become free cash flow positive in the second half of fiscal 2028. What’s more, the company predicts more than $30 billion in free cash flow in fiscal 2029. It is worth noting that when Oracle released its fiscal 2027 Q1 results in September (for the three months ended Aug. 31), the company pointed out that customers funded a significant majority of the new contracts it signed during the quarter.
The company has been asking customers to make prepayments or bring their own hardware. This strategy will ease pressure on its cash flow. Not surprisingly, Oracle’s data center infrastructure investments for fiscal 2028 are fully funded, as it noted in the Investor Day presentation. What’s more, Oracle expects to bring its net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) below 3.5x by fiscal 2029.
A company with a net debt-to-EBITDA ratio between 1 and 3 is considered capable of servicing its debt payments. So, Oracle’s guidance about its free cash flow profile and the debt seems to have assuaged investors’ concerns about the health of its balance sheet. Moreover, the company has maintained its long-term growth targets.
