Oracle (ORCL) is partying like it’s 1999. Oracle stock is tracking to have its best year since the turn of the century as the tech giant joins the euphoria around artificial intelligence, the hot trend that experts say could boost its reach — and finally make it a serious contender — in the cloud.
The database software titan, whose shares have soared more than 80% year to date, was slow to join the party when cloud-computing took hold in the enterprise technology world a decade ago. Oracle has been playing catch-up to cloud giants Amazon (AMZN), Microsoft (MSFT) and Google parent Alphabet (GOOGL) and still trails far behind them.
↑
X
From Salesforce To Snowflake: How SaaS And AI Innovations Are Impacting The Software Sector
But as the spotlight shifted to AI, Oracle, led by co-founder and Chairman Larry Ellison, has pounced on an opening in the hot new trend. The 47-year-old tech behemoth has forged partnerships with AI leader Nvidia (NVDA), made peace with longtime rivals and moved aggressively to address the AI needs of startups like Elon Musk’s xAI and ChatGPT creator OpenAI.
This time, Oracle is moving hard and fast to try to be the life of the party.
“Oracle has a history of being late to these types of parties,” IDC President Crawford Del Prete told Investor’s Business Daily. “Larry was a bit of a cloud denier early on in the move to the cloud, and then ultimately they came hard at the cloud and ended up doing quite well. But in this case, we’re only two years into the journey and they’ve been quick to move on AI.”
Ellison As Second Richest Man
Oracle stock has surged on three straight earnings reports that sent shares soaring by double-digits. The company’s shares rocketed 14% when Oracle reported fiscal first quarter results in September, 10% after its Q4 earnings in June and 12% after its Q3 report in March.
Oracle’s stock price climb this year is fourth best among companies with market capitalizations above $200 billion. Only Nvidia‘s 194% gain and 81% gains by both chip-manufacturer TSMC (TSM) and Netflix (NFLX) are ahead of Oracle’s as of Nov. 21.
Ellison has surpassed Amazon founder Jeff Bezos as the world’s second richest-man behind Elon Musk, according to Forbes. Ellison, who just turned 80, stepped aside as CEO a decade ago but remains chairman, CTO and an outspoken fixture at Oracle’s public events.
“Everything is coming together,” Constellation Research analyst Holger Mueller told IBD. “That’s why you see an 80-year-old having this much fun at work.”
Under Ellison and Chief Executive Safra Catz, Oracle has aggressively positioned itself as a player in the cloud services market, especially for helping AI startups train their compute-intensive models.
Those efforts often focus on the Oracle Cloud Infrastructure business, which competes with Amazon Web Services, Microsoft Azure and Google Cloud. But Oracle also has a wide portfolio of enterprise software services, such as its industry-leading database software and cloud applications like NetSuite and Oracle Fusion.
“That vision from the chip to the user-click along one stack is what Oracle has been building toward and is now being realized by customers and helping Oracle’s momentum,” Mueller told IBD.
The strategy is getting a boost from Oracle’s strength as the industry’s leading database provider. Oracle database software is used by 96% of the Fortune 100, according to company figures.
“Before you go on your AI journey, you have to get your data straight,” Del Prete said. “You have got to structure your data in a way that these models can take the best advantage of.”
‘Growing Larger And Larger’
Oracle stock most recently rallied off a strong fiscal first quarter earnings report on Sept. 9, as well as positive response to its CloudWorld customer conference in Las Vegas the same week.
Oracle told analysts that it expects revenue to reach $104 billion in fiscal year 2029. The outlook implies roughly 16% compound annual sales growth over the next five years, compared to 6% average growth in Oracle’s previous five fiscal years.
The target is striking for a reason: Oracle has only achieved double-digit annual revenue growth in one year out of the past 10.
The company is betting it can accelerate growth as startups and other enterprises seek to adopt AI. That includes demand for training massive AI models, which Ellison has compared to a gold rush.
“This business is just growing larger and larger and larger,” Ellison told analysts following the company’s Q1 earnings report. “There is no slowdown or shift coming.”
Oracle declined to comment for this story, citing a quiet period ahead of its next quarterly earnings report.
‘The Excitement Is Back’
Oracle’s cloud and AI offensive is notable for a company known for pooh-poohing what became a major trend.
Ellison — an influential presence in Silicon Valley — was known for being dismissive of the cloud. In 2009, he called the term “gibberish” that mostly rebranded practices already prevalent in the technology industry.
But Amazon Web Services quickly built a huge and profitable business renting computing capacity to startups and enterprises. Microsoft’s Azure and Google Cloud followed Amazon’s lead. Oracle finally joined the party most directly in 2016, when it launched its cloud infrastructure business.
By then, Amazon, Microsoft and Google were firmly established as what analysts call the big three cloud-service providers.
Meanwhile, Oracle had a more bumpy transition to cloud services sales from its historic business of software license support revenue. But Oracle reached a milestone with its February-ended quarter this year when its cloud revenue exceeded license support revenue for the first time. Total cloud revenue, including cloud infrastructure and Oracle’s software-as-a-service products, grew 21% to $5.6 billion in Oracle’s September-ended quarter.
“Oracle has always been a strong technology player, but it did see some relatively stagnant growth years during which many investors had assumed its days of excitement were over,” Guggenheim analyst John DiFucci wrote to clients after the September earnings report. “Well, the excitement is back.”
Oracle now has 21 buy or overweight ratings from Wall Street analysts, compared to 14 neutral calls and one sell rating, according to FactSet. That’s a big change from three years ago when Oracle stock had just seven buy ratings out of 30 analyst recommendations, according to FactSet.
Jefferies analysts took the upbeat guidance from September as a sign Oracle is “getting its mojo back.” Analyst Brent Thill gave Oracle a buy rating and price target of 190 in the Sept. 15 note. At the time, the stock had most recently closed near 162.
The valuation “reflects a rare acceleration story in software,” Thill wrote. Oracle stock hit an all-time high of 191.77 on Nov. 13.
Can OCI Emerge As The 4th Cloud?
Oracle’s cloud infrastructure business will play a critical role in the tech giant’s ability to reach its targets. OCI makes up a small part of overall revenue, but it is among Oracle’s fastest-growing businesses and a big focus for investors.
OCI revenue increased 45% to $2.2 billion in Oracle’s August-ended fiscal first quarter. That marked a slight acceleration from a 42% year-over-year rise in its May quarter. The unit’s sales jumped 49%, 52% and 66% in the quarters before that.
Still, in the cloud Oracle is small fish. Amazon, Microsoft and Google together captured 64% of the $84 billion in global cloud infrastructure spending in the third quarter, according to Synergy Research Group.
Oracle is growing at a faster overall rate than each of the big three providers. But that’s from a much smaller base. Still, Oracle is emerging as a clear alternative to the Big Three cloud computing providers.
“Of those around the edge, Oracle has been performing very well and slowly gaining market share,” Third Bridge analyst Jordan Berger told IBD.
Racking Up AI Chips
A key sector underscores Oracle’s momentum.
OCI has emerged as a popular option for AI startups looking to train their large language models. Catz said in June that Oracle’s cloud won roughly $17 billion in AI-related contracts during its 2024 fiscal year.
Oracle is an investor and partner with AI startup Cohere and provides the computing power behind the first large language model by Elon Musk’s xAI startup. ChatGPT creator OpenAI hosts its models on Microsoft’s cloud but plans to do some of its training work with Oracle.
Oracle redesigned its cloud infrastructure business in 2018. The redesign allowed Oracle to build a more modern cloud offering that is “highly differentiated,” in Ellison’s view. At CloudWorld and before that, he said OCI is optimized to power AI training quicker and cheaper.
Oracle has also spent billions to build a supply of what every AI startup is desperately seeking: Nvidia graphics processing units. Ellison recounted at CloudWorld a dinner meeting from a year earlier with Musk and Nvidia Chief Executive Jensen Huang.
“Me and Elon (were) begging Jensen for GPUs: ‘Please take our money, please take our money,'” Ellison said.
Rivals Partner Up
Oracle also pivoted to a new strategy. After years of heated competition with the hyperscalers, as the largest cloud providers are known, Oracle has begun partnering up with them.
Over the past 14 months, Oracle has announced deals with Microsoft, Google and then Amazon that allow Oracle’s database software to run inside its partners’ cloud platforms. Through the agreements, Oracle places its hardware inside data centers from Amazon, Google and Microsoft to optimize performance.
Oracle’s peace pact with Amazon was particularly significant.
When Oracle announced its AWS partnership, Ellison said the company was responding to “huge demand” for solutions from enterprises that operate across multiple clouds. But it also marked a shift in tone after a history of public trash-talking between Ellison and Amazon Chief Executive Andy Jassy, who led AWS before taking the top job at Amazon.
Ellison said during the analyst day in September that he “got kind of cute” in some of his past Amazon commentary. But customers want the two companies to work together.
“We have a lot of the same customers,” Ellison said. “I think they’re partnering with us because our customers have huge investments in Oracle databases, huge investments in applications built on those Oracle databases, but they also like Amazon.”
Analysts are bullish that the arrangements could help bring more data from on-premise networks into the cloud.
“Oracle databases underpin some of the most valuable and resource-intensive IT workloads, and we estimate that perhaps 80%+ are deployed on-premise,” UBS analysts wrote in a note after the CloudWorld conference. “If the cloud deals unlock a material migration opportunity, Oracle databases could emerge as one of the next major cloud migration stories.”
Oracle Stock: Scaling Up To Meet Demand
Scaling capacity to meet growing AI compute demand remains a key challenge for cloud companies. Catz said in September that Oracle’s remaining performance obligations, or contracted work backlog, grew 53% year over year to $99 billion during the August-ended quarter, driven by cloud demand.
Meeting that demand will require big-time spending.
Oracle expects capital expenditures to double from the $7 billion the company spent in fiscal 2024. Ellison said in September that Oracle has 162 cloud data centers live or under construction throughout the world.
At the Oracle CloudWorld conference, Oracle and Nvidia announced OCI would deploy the largest-ever GPU compute cluster, with up to 131,072 Nvidia Blackwell chips.
Oracle’s capital spending is a drop in the bucket next to the $300 billion total that Morgan Stanley analysts project Amazon, Microsoft, Google and Facebook parent Meta Platforms (META) will spend on AI data centers next year.
Oracle’s smaller scale contributes to its lower capex spending, Jefferies’ Thill told clients in the September note. “But we believe ORCL must invest even more aggressively in capex to help bridge that gap,” he wrote.
Oracle Stock: Waiting For AI Payback
Oracle faces other challenges. Like other enterprise tech players, Oracle will have to show sooner than later that investing in AI tools will pay off for customers.
“The next year in generative AI is going to be about one word over and over and over: payback,” IDC’s Del Prete said.
Companies are moving past what Del Prete described as the scrambling stage of AI and want to see more clearly how it will improve productivity in their specific industry.
But, Del Prete added, Oracle has invested in industry-specific applications and expertise that could “come into focus” over the next year.
In the meantime, Oracle is added more AI-powered tools for enterprises. They include a suite of generative AI agents on OCI that the company launched during CloudWorld. Oracle describes its agents as able to help businesses optimize call centers, expedite legal research and recruit job candidates, among other uses.
Financial Targets Set High Bar
Oracle must grapple with another trend: Overall spending on enterprise software remains choppy. And rivals like Amazon and Microsoft continue to spend big on AI, pressing the advantage of their scale. Smaller rivals like MongoDB (MDB) are pushing for greater share of the database market.
RBC Capital analysts late in October initiated Oracle stock with a neutral “sector perform” rating.
“Given the need for substantial growth acceleration to meet Oracle’s FY26 and FY29 revenue targets, achieving these targets seems challenging,” a team of RBC analysts led by Rishi Jaluria wrote in the client note. “While there may be opportunities for margin expansion as OCI scales, the high and sustained levels of CapEx could limit overall expansion. With that in mind, we believe Oracle’s ability to meet its financial targets remains at risk.”
CFRA analyst Angelo Zino also placed a neutral hold rating following earnings. “Aggressive capex spend and net debt of $74 billion will limit free-cash-flow growth,” Zino wrote to clients in September.
Q2 Earnings Are Its Next Big Test
The spotlight is now on Oracle’s upcoming fiscal second-quarter report.
Analysts are expecting adjusted earnings to grow 11% to $1.48 per share, according to FactSet. Sales are projected to grow 9% to $14.1 billion.
Oracle Cloud Infrastructure growth will remain in focus for investors. KeyBanc analyst Jackson Ader said in a Nov. 15 client note that consensus expectations for OCI revenue are at $2.34 billion, representing 56% year-over-year growth.
Technical Analysis Of Oracle Stock
Oracle stock, which has rocketed more than 80% this year, broke out of a flat base with a 146.59 buy point Sept. 10, according to IBD MarketSurge. Shares also bounced up from a three-weeks-tight pattern earlier this month after Oracle rallied following the election of Donald Trump to a second presidential term. With the stock extended, investors should wait for another base to form.
YOU MAY ALSO LIKE:
Data Center Supplier Vertiv Stock Surges As AI Powers Red-Hot Demand
Palantir Is One Of 10 Stocks To Get Huge Price Target Hikes
IBD Live: Learn And Analyze Growth Stocks With The Pros
Get Timely Buy & Sell Alerts With IBD Leaderboard
