How Citi Thinks You Should Buy into Tumbling Tech Stocks like Oracle

The tech sector has been marked by volatility in recent times, with several stocks experiencing significant drops. One such stock is Oracle, which has fallen 56% since hitting its all-time high last year and now presents a potential buying opportunity.

Citi analyst Tyler Radke believes the worst is behind Oracle, citing mechanical factors rather than fundamental breakdowns as the primary drivers of the decline. He points to the summer’s collapse, where Oracle lost half its value in just 30-40 trading sessions, as evidence that panic selling was at play rather than a considered repricing of the company.

Radke argues that the underlying fundamentals remain intact despite the stock’s drastic decline. Oracle’s software business remains profitable and growing, but the stock price has become detached from reality. This disconnection is attributed to mechanical factors such as credit spread widening and aggressive share issuance.

Credit spread widening was a key factor driving the sell-off, as worries grew about Oracle’s rising debt load and the cost to insure its bonds climbed, putting pressure on the equity. This created a self-reinforcing cycle where investors became increasingly anxious about debt levels, demanding higher yields on corporate bonds, which in turn drove up borrowing costs and further spooked the market.

Oracle’s woes were also exacerbated by aggressive share issuance. The company has been selling new stock to fund its data center buildout, adding supply to the market and capping potential rallies. Radke argues that management needs to signal a halt to this equity issuance for the stock to recover.

The significance of Citi’s analysis extends beyond Oracle itself, highlighting the larger issue of sentiment-driven selling in the tech sector. With investors increasingly focused on growth and valuation, even solid companies like Oracle can get caught up in a wave of negative headlines and forced selling. This dynamic creates a perfect storm of volatility where stocks are punished for being perceived as overvalued rather than their actual fundamentals.

Investors should be cautious not to conflate fundamental value with market sentiment. While Oracle’s stock price may not reflect its underlying worth, it doesn’t necessarily mean it’s a good time to buy. Conversely, Citi’s analysis suggests that even when the worst appears to be over, the tech sector can still surprise with further volatility.

Ultimately, Radke’s “buy the dip” case relies on investors being willing to look beyond the noise and focus on fundamentals. It’s a reminder that in high finance, seemingly rational decisions are often driven by emotional factors like fear and greed. By understanding these dynamics, investors can make more informed bets on which stocks will emerge from the wreckage.

As Oracle prepares to face another quarter of uncertainty, Citi’s analysis serves as a timely reminder that even in chaos, there are still opportunities to be had.