I Can't Stop Buying This New Stock

Hey, welcome back subscribers. My name is Ala. This is my world of stocks and today we are continuing our newest mini series of trying to find the next big stock breakout opportunity in the market by hunting for beaten down stocks that investors currently hate but that I think could be big sleeper plays in future years over the long term. Which is a very difficult task by the way. So if you are enjoying the series then please just let me know by hitting the like and the hype buttons down below cuz that lets me know that you want me to continue doing this series in the future. But again, just to be clear, these are not the popular names that the market has excuse [clears throat] me that the market has already run up. These are mostly crashing stocks with much greater risk but that I think could potentially break out in the future. And after covering some really interesting plays in previous episodes among cyber security, enterprise software and even fintech. Well, for today's episode, believe this is a number four now, we're going to pivot over into the actual heavy lifting of the AI revolution. Looking for companies that are building the absolute baseline digital factories that power generative AI. And the company that I chose to go with is actually going through one of the wildest rides in the market where after soaring to almost a $1 trillion market cap last year briefly making its founder one of the wealthiest people in the entire world, the stock actually proceeded to crater into the ground losing well over half its entire value from the top down to a level now that I think is looking extremely attractive. And that is of course Oracle, ticker symbol ORCL. And here's exactly why I chose it for today's episode. Now first of all, if we just look at the AI sector as a whole, one of the most obvious observations that I think we can make based on everything we've seen so far and and how it's all progressing right now is that the need for computing power is only going to continue to skyrocket, whether it's for enterprise, cloud, generative AI, all the chatbots, all the video generation, the autonomous agents that will probably be running everything in the future. None of that is really feasible without the massive and continuously growing larger data centers that get packed with sometimes thousands of specialized chips and GPUs, not to mention, you know, the cooling systems, the massive energy and power grid considerations, the advanced networking to ensure zero latency. And the thing is that traditional older cloud systems and all the legacy corporate networks were really never designed to handle all of these intensive workloads. As a result, all the IT infrastructure worldwide, really, is now undergoing a giant, super expensive upgrade cycle. And it's happening basically all at once, with organizations now realizing that if they don't invest in these foundational layers today, then they really risk getting left far behind. And it's all ballooned into this growing kind of snowball effect, where everyone just keeps desperately competing for the most access to all of this AI compute, with ideally an enterprise-grade cloud partner that can handle all of these unprecedented workloads reliably for them, when that is purpose-built for optimizing compute, storage, and networking all in one place. That's really the future of AI, in my opinion. And I think the companies that can really provide that at the highest level, with again strong reliability, are going to be really be the biggest winners from it long term. Cuz we're going to reach a point where virtually every company in the world will need a secure place to not only store all of their sensitive, you know, most sensitive data, but they also need the ability to run AI operations directly on top of that data, without sacrificing security or speed. Well, that's where I think Oracle really comes in and and excels, actually, in operating some of the fastest and most cost-efficient AI data centers in the world to capture on a ton of this gigantic demand. And to really understand why Oracle is positioned so well for this, at least in my opinion, well, we have to look at the incredible job that they've done at transforming their business model over the past several years. Where for decades prior, Oracle's legacy uh data database business really acted as a sort of digital vault for sensitive information. If you were a massive global bank like JP Morgan or a giant retailer like Walmart or even a highly secure government agency like the CIA, who, by the way, was actually Oracle's very first customer back in the '70s, well, you kept your most mission-critical data locked tightly inside an Oracle database. And today, it's actually that historical dominance that is now fueling much of their incredible success. See, while competitors like Amazon and Microsoft built their clouds as massive generalists to attract a wider variety of standard computing workloads, well, Oracle took a bit of a different approach. They built Oracle Cloud Infrastructure, what is called OCI, to be highly optimized almost entirely for the intense workloads of generative AI. And more importantly, they brought these cutting-edge AI tools directly to their already existing databases where much of the world's critical information was already stored. That's where the advantage comes in. And what this means for massive corporations is is that for most of them, it can oftentimes be much faster, cheaper, and more secure to simply run these AI applications right on top of the database that they already trust rather than trying to migrate, you know, decades of sensitive records over to an entirely new cloud provider. Well, the result of all that is that you essentially have now a giant growing high margin ecosystem where customers don't just rent cloud capacity, but they actually end up running huge portions of their business directly on Oracle's own software stack and their cloud infrastructure. And that strategy is now yielding some meaningful growth for what used to be a slow legacy player. Last quarter, for example, Oracle's revenue soared by over 20% the biggest standout being their cloud infrastructure segment that skyrocketed by a staggering 93% year-over-year. And that unit, by the way, now makes up about 30% of Oracle's total sales, meaning that if it continues to outperform, which there isn't a whole lot of reason to think it shouldn't, well, then the whole company's top-line growth would only accelerate even further in future quarters and years to come. A case in point, probably the the biggest elephant in the room is their mind-blowingly large over half a trillion-dollar backlog sitting at around 638 billion to be exact. And by the way, that figure is also up over 360% year-over-year. And for context, it's now larger than the backlog of even some much larger tech giants like Microsoft and Amazon. And if you can believe it, it's actually even larger than Oracle's own entire current market cap. How crazy is that? >> [snorts] >> And you might be wondering, well, how's that even possible? How is the entire company itself not even worth as much as they're expected to generate in future contracts? Well, the reason is actually quite simple, and in fact, it's even a huge part of why the stock has crashed by so much. See, first of all, this backlog is based on many future years worth of contracts, for which we don't know exactly when all of it will be recorded. Now, that's not to take away from how important it is. In fact, it's probably worth around eight entire years of revenue based on their current run rate. But the point is that this is a long-term process that will need to be, you know, worked through gradually over time. And it can obviously change dur- during that time, too. Hence why or hence where really uh much of the risk actually comes from for this stock. See, the booming AI market is something uh unprecedented. And while companies are pouring unbelievable amounts of money into it right now, it is still something that could always crash and change at the very least be volatile. In fact, of that $638 billion, more than 300 billion of it is reportedly coming from just one single customer in OpenAI, the company behind ChatGPT, who signed a huge five-year contract with them starting in 2027. And it's by far the largest individual cloud deal ever signed. Well, last year OpenAI reported more than a $38 billion net loss. And so Wall Street is worried that, you know, if the giant cash burn continues and investors stop pouring money into OpenAI, then Oracle could see a large amount of that back suddenly disappear if, you know, OpenAI can't can't actually meet uh meet what they agreed or what they agreed on. And the other uh major concern that's largely related to all of this, as well, is in how much Oracle still needs to spend in building out their own infrastructure just to meet all of that incredible demand. Uh this fiscal year, for example, Oracle expects to spend between 70 to 95 billion dollars on CapEx. And to fund all of that, they're having to raise tens of billions more in new capital, which is pushing their long-term debt above the $100 billion mark. And because of all of this aggressive spending and expansion, well, Oracle's free cash flow also turned negative for the first time in in a long time, might be in years, I think. Well, if there's one thing that we know about the market, it's that it absolutely hates any uncertainty coming from a company that is taking on even more debt while still burning through their free cash flow. That's a huge no-no. But, that's also where I think a lot of the opportunity comes from, too. This sent shares crashing by around 60% from the top, leaving one of the absolute cheapest valuations you could ever dream of in in a high-flying tech stock like this. So, now trades over 50% lower than the sector median on a forward PEG basis. It's also like close to 30% lower um on a forward PE, too, even a more closer looking uh metric. Now, if Oracle can successfully navigate some of these challenges, deliver on its obligations, and over time get a stronger return on their CapEx, which by the way, analysts do project both their revenue and their net income over the long term to increase dramatically as the heavy spending comes down. Uh so, by so, don't get mad at me if uh that doesn't come to fruition. Analysts themselves are expecting it, too. Um but, if all of that happens, which I'm I'm hoping for as an investor, uh then the stock price today could end up being a huge bargain a huge bargain at current levels. I'm not saying that it for sure will be the case. I'm not a fortune teller, and again, there's huge risk involved here with almost any AI stock these days, let alone one that the market absolutely hates right now. But, for me personally, I just feel that the risk is worth it at these levels. So, I'm taking a long-term chance on it. But, what do you guys think? Do you agree with my move here, or do you think that I am crazy for it? I'd love to hear your thoughts down below. And hey, even if you hate this one, uh don't worry because I already have episode five lined up with another exciting beaten-down stock to continue our new mini-series. Maybe you'll like that one. So, make sure you subscribe so you don't miss future episodes, and either way, I just hope you're all doing well out there. Thank you so much for stopping by, and uh I will catch you guys in the next one. All right, take care my friends. Bye-bye. >> [music]