My Advice? Don’t Get Distracted by Oracle Stock’s Latest Slump.

• Oracle has sold off since its post-earnings surge.

• The tech giant’s cloud growth depends on a handful of key customers.

• Oracle is taking on debt and undercutting the competition on pricing.

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It’s been a wild couple of months for Oracle‘s (NYSE: ORCL) stock investors.

Oracle stock surged 36% on Sept. 10 in response to a blockbuster cloud deal with OpenAI and a five-year roadmap that would pole-vault Oracle Cloud Infrastructure (OCI) into one of the top clouds by revenue.

But Oracle stock is now trading down around 25% from its 52-week high as investors grow critical of artificial intelligence (AI) spending. Oracle is not alone. Last week, Meta Platforms sold off because investors didn’t like how its operating expenses were outpacing revenue growth.

Here’s why the sell-off in Oracle is overblown and why long-term investors should take a closer look at buying the growth stock now.

OCI complements Oracle’s legacy database services business, unlocking a new revenue stream from enterprise clients.

Oracle’s multicloud data centers are unique because they are new, fast, and tailor-made for handling high-performance computing. Oracle has plans to bring more than 70 of these data centers online in just a few years.

By embedding native versions of Oracle Autonomous Database and Exadata Database Service inside Amazon Web Services, Microsoft Azure, and Alphabet-owned Google Cloud, Oracle reduces latency and boosts performance. So in this vein, Oracle is both a competitor and a partner of the big three cloud providers.

OCI’s pricing model is specially geared toward companies that already use its database services. OCI is known to be cheaper than the big three cloud providers, especially for demanding workloads that can get expensive on other clouds. Oracle is specifically building its cloud offering around enterprise-scale AI workloads, whereas the big three offer considerable general compute.

Despite Oracle’s long-term potential, the stock definitely has its fair share of risks. The most glaring is Oracle’s balance sheet. Unlike many other hyperscalers that have more cash, cash equivalents, and marketable securities than debt, Oracle has been taking on debt to build out its data center infrastructure. Leverage can pay off if Oracle converts its backlog of orders into real revenue, but it can backfire if a key customer like OpenAI pulls back on spending.

Oracle is using competitive pricing to win new business and position OCI as a worthy rival to the big three cloud providers. But it’s worth noting that Oracle’s aggressive five-year roadmap is for OCI revenue targets. If that revenue is achieved by undercutting the competition at the expense of margins, Oracle’s profitability could be strained, delaying debt paydown.