When it comes to investing in technology giants, Oracle Corporation (ORCL) often sparks debate among value investors. Known for its robust cloud infrastructure and database software, Oracle has been a staple in the tech sector for decades. But is its stock a bargain or overvalued in today’s market? Using the Buffett and McGrew Valuation Methods, I conducted a detailed analysis to uncover Oracle’s intrinsic value and determine whether it’s a buy, hold, or sell as of June 13, 2025, with a closing price of $215.22. Here’s what the numbers reveal.
The Valuation Framework
The Buffett Valuation Method, inspired by Warren Buffett’s discounted cash flow (DCF) approach, and the McGrew Valuation Method, which adjusts growth assumptions for dynamic companies, are powerful tools for assessing a stock’s true worth. Both methods rely on projecting free cash flows (FCF), discounting them to present value, and applying a margin of safety to account for uncertainties. For Oracle, I used five years of FCF data from its quarterly cash flow statements, shares outstanding from its balance sheet, and a provided closing price of $215.22.
Data Inputs
Oracle’s FCF has been volatile, reflecting its heavy investments in cloud infrastructure. The trailing twelve months (TTM) FCF as of February 28, 2025, was $5,812 million, significantly lower than the $13,143 million in FY 2021, resulting in a negative 5-year FCF CAGR of -15.04%. However, the 3-year FCF CAGR from FY 2022 ($5,518M) to TTM ($5,812M) was a modest 1.73%. Given this low growth, Oracle was classified as a stable stock, warranting a conservative 5% growth rate for projections. I used a discount rate of 8% (4% Treasury yield plus 4% premium), a perpetual growth rate of 2.5%, and 2,803 million shares outstanding.
Buffett Valuation Method
The Buffett method assumes a constant 5% FCF growth rate for ten years for stable companies like Oracle. Starting with the TTM FCF of $5,812 million, I projected FCF to reach $9,467.14 million by Year 10. The terminal value, calculated as Year 10 FCF multiplied by (1 + 2.5%) divided by (8% – 2.5%), was $176,432.73 million. Discounting all cash flows and the terminal value back to the present at 8% yielded a total present value of $132,586.75 million. Dividing by 2,803 million shares gave an intrinsic value per share of $47.30. Applying a 25% margin of safety, the target price is $35.47.
McGrew Valuation Method
The McGrew method adjusts growth assumptions based on historical CAGR. Since Oracle’s 3-year FCF CAGR (1.73%) is below 10%, it’s treated as a non-growth stock, mirroring the Buffett method’s parameters. Consequently, the McGrew valuation produced identical results: an intrinsic value of $47.30 per share and a target price of $35.47 with a 25% margin of safety.
Valuation Results
Below is the summary of the valuation results for Oracle:
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| ORCL | Buffett Valuation | $47.30 | $35.47 | $215.22 | Overvalued |
| ORCL | McGrew Valuation | $47.30 | $35.47 | $215.22 | Overvalued |
Valuation Status
To assess Oracle’s attractiveness, I compared the intrinsic value ($47.30) to its closing price of $215.22. The valuation criteria are:
- Screaming Buy: Closing price ≤ $35.47 (75% of intrinsic value)
- Buy: $35.47 < Closing price ≤ $44.09 (93% of intrinsic value)
- Hold: $44.46 ≤ Closing price ≤ $63.86 (94% to 135% of intrinsic value)
- Overvalued: Closing price > $64.33 (136% of intrinsic value)
With a closing price of $215.22, well above $64.33, Oracle is overvalued under both valuation methods. This suggests the market is pricing Oracle at a significant premium, possibly due to optimism about its cloud growth or AI-related prospects.
Key Assumptions and Limitations
The analysis assumes a conservative 5% growth rate due to Oracle’s low 3-year FCF CAGR, which may underestimate its potential if cloud revenues accelerate. The 8% discount rate reflects a moderate risk premium, but a lower rate could increase the intrinsic value. The FCF volatility, with a negative 5-year CAGR, highlights the risk of relying on historical data. Additionally, the financial data only extends to February 28, 2025, and without real-time industry outlook, I couldn’t adjust growth assumptions further. The single-stock focus limits comparative insights, and the closing price, while provided, couldn’t be independently verified.
Investment Implications
Oracle’s overvaluation doesn’t mean it’s a poor investment. Its leadership in cloud computing and database solutions positions it well for long-term growth. However, at $215.22, investors are paying a steep premium for future expectations. Value investors might wait for a price drop closer to $35.47–$44.09 to secure a margin of safety. Growth investors, betting on Oracle’s AI and cloud expansion, may tolerate the premium but should monitor FCF trends closely.
Based on the Buffett and McGrew Valuation Methods, Oracle’s intrinsic value is $47.30 per share, far below its $215.22 market price, signaling an overvalued stock. While Oracle’s fundamentals are strong, prudent investors should exercise caution and await a better entry point. This analysis underscores the importance of grounding investment decisions in intrinsic value, ensuring a buffer against market exuberance.
