The artificial intelligence (AI) sector has been in the spotlight for several years now. Much of the ride has been up and to the right, but recently a cohort of the market has begun to cast more doubt on AI valuations and all of the spending on AI infrastructure, leaving investors wondering what the returns will look like and if the hyperscalers are hitting the gas too early.
Still, much of the market, including Wall Street analysts, sees room to run in the AI sector. Here's one AI company to buy before it could double and join the exclusive $1 trillion club with Tesla and Meta Platforms, according to multiple Wall Street analysts.
A bumpy data center ride
Longtime cloud provider Oracle (ORCL 2.43%) had a tumultuous end to 2025. In September, the company left the market stunned after reporting blowout earnings and providing jaw-dropping guidance that investors did not see coming.
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Oracle struck several significant deals with hyperscalers to provide AI cloud capacity, including a $300 million agreement with OpenAI. Oracle, at the time, had $455 billion of remaining performance obligations (RPOs), which is essentially contracted revenue that has yet to be realized. The stock ripped about 40% higher following the phenomenal September report.
However, once investors began to dig, the outlook became much murkier. The Information reported that Oracle's data center business was running on slim margins. Oracle had to raise tens of billions in debt to complete its data center build-out, and it turns out that OpenAI has $1.4 trillion of outstanding data center commitments, leading the market to question how the company plans to fund all of this.
In its most recent earnings report in December, Oracle missed revenue estimates, reported negative free cash flow, and increased its capital expenditure guidance, causing shares to decline further. The stock ended the year up about 17%, but gave back all of the gains after the blowout September earnings report.
Multiple Wall Street analysts believe concerns are overblown
In December, the concerns around Oracle were significant and the yield on the company's five-year credit default swaps, which is essentially insurance on the company defaulting on its debt, surged. But Wall Street analysts at Jefferies and Mizuho believe these concerns are overblown and expect the stock to more than double over the next 12 to 18 months.
Jefferies analyst Brent Thill reiterated a buy rating on the stock and assigned a $400 price target. Jefferies essentially believes that Oracle will be able to complete its data center build-out and transform its RPOs into real revenue, making it one of the key enablers of AI. Thill likes the risk-reward proposition and values the stock at 16 times its enterprise value to its 2027 calendar year earnings before interest and taxes.
NYSE: ORCL
Key Data Points
Mizuho analyst Siti Panigrahi also has an outperform rating on the stock and a $400 price target. Panigrahi and his team believe the company has a good financing strategy in place that focuses on vendor financing, graphics processing units (GPU) rental agreements, and even customers providing their own chips, which will help the company save capital up front and better match profits with cash flows.
Panigrahi also pointed out that management is focused on maintaining an investment-grade rating from the credit rating agencies and denied reports that the company is behind schedule in providing data center capacity to OpenAI.
Better risk-reward setup
Oracle undoubtedly carries real risk, including a high debt load and the possibility of OpenAI being spread too thin. That said, price action in recent months has taken this into account, at least somewhat, so I believe the risk-reward proposition has improved. The stock now trades at 18 times forward earnings. There is still a high likelihood that AI proves to be ubiquitous long-term, similar to the internet. If that's true, then the sector will need these data centers.
Oracle's stock may be choppy this year, and, as I mentioned, it remains a high-risk, high-reward play. However, I think investors can start with a small, speculative position and perhaps build on it as the company's outlook becomes clearer.
