What's happened
Since its 2019 IPO, Saudi Aramco's stock has underperformed global peers, with total returns of only 16%. The company is now taking on debt to pay dividends, and its shares are at a five-year low amid investor shunning and economic challenges linked to low oil prices and project delays.
What's behind the headline?
The underperformance of Aramco's stock highlights the challenges of Saudi Arabia's economic diversification efforts. Despite ambitious plans, low oil prices and project delays have eroded investor confidence. The company's reliance on debt to sustain dividends signals financial strain, contrasting sharply with global energy giants like Exxon and Shell, which have delivered over 50% returns. The PIF's strategic shift towards AI and technology investments, including new AI firms and digital infrastructure, indicates a pivot to future growth sectors. However, these initiatives are still in early stages and face execution risks. The broader context suggests that Saudi Arabia's economic transformation remains a work in progress, with current setbacks likely to slow the pace of diversification but not halt it. The focus on AI and digital innovation, backed by substantial investments, could eventually offset oil dependency if successfully scaled, but immediate market confidence will depend on oil price stability and project execution.
What the papers say
Bloomberg reports that Aramco's stock has underperformed all its peers since its IPO, with total returns of only 16%, and the company is now borrowing to pay dividends. The New Arab highlights that Saudi mega-projects, including NEOM, have faced significant valuation cuts due to low oil prices and cost overruns, with the PIF reducing domestic infrastructure investments by $8 billion. It also notes the PIF's strategic shift towards AI, with investments in new AI firms and digital infrastructure, aiming to position Saudi Arabia as a global leader in AI. The article emphasizes that these technological investments are part of Crown Prince Mohammed bin Salman's Vision 2030, designed to diversify the economy and reduce reliance on oil. The contrasting perspectives show that while traditional energy assets struggle, Saudi Arabia is actively investing in future sectors like AI, which could reshape its economic landscape over the coming years.
How we got here
Saudi Arabia's Vision 2030 aims to diversify the economy away from oil, with major projects like NEOM and investments through the Public Investment Fund (PIF). The IPO of Aramco was part of this strategy, but the stock's performance has lagged, partly due to low oil prices, project delays, and investor skepticism. The PIF has also faced valuation cuts in its domestic investments amid broader economic adjustments.
Go deeper
Common question
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Why Is Saudi Aramco Underperforming Since 2019?
Since its IPO in 2019, Saudi Aramco's stock has struggled to keep pace with global energy peers, raising questions among investors about its future prospects. Factors like low oil prices, project delays, and rising debt levels have contributed to its underperformance. But what does this mean for investors and the company's future? Below, we explore common questions about Aramco's stock performance, its debt and dividends, and what the future might hold for Saudi Arabia's energy giant.
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Why Are Oil Prices Affecting Saudi Aramco's Stock?
Saudi Aramco, the world's largest oil producer, has seen its stock underperform in recent years. Fluctuations in oil prices play a significant role in this trend, impacting investor confidence and company revenues. But what exactly is causing these price swings, and how do they influence Aramco's financial health? Below, we explore the key factors behind oil price movements and their effects on Saudi Aramco and the global economy.
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Why Is Saudi Aramco Struggling in Today’s Oil Market?
Saudi Aramco, the world's largest oil producer, has been facing significant challenges lately. Despite its prominence, the company's stock performance has lagged behind global peers, and its profits are under pressure. Many investors and analysts are asking: what's causing these struggles? Is it low oil prices, project delays, or broader economic shifts? Below, we explore the key factors impacting Saudi Aramco and what it means for investors and the future of oil stocks.
More on these topics
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Saudi Arabia, officially the Kingdom of Saudi Arabia, is a country in Western Asia constituting the bulk of the Arabian Peninsula.
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Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian multinational petroleum and natural gas company based in Dhahran, Saudi Arabia.
It is one of the largest companies in the world by revenue.