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Oracle stock has outperformed Microsoft by 10 percentage points this year.
Justin Sullivan/Getty Images
Oracle
has been one of the more surprising beneficiaries of this year’s investor frenzy over artificial intelligence stocks.
Powered by growing expectations that its Oracle Cloud Infrastructure business will get a boost from generative AI workloads,
Oracle
stock (ticker: ORCL) has rallied more than 50% this year. It has outperformed
Microsoft
(MSFT), widely considered one of the most important software players in AI, by 10 percentage points.
Oracle will report August quarter results after the close on Monday. (One of the underappreciated elements of Oracle is they manage to close the books more quickly than any other tech company—in this case, 11 days after quarter end.)
The company has projected constant currency revenue growth in the quarter of between 8% and 10%, with profit of $1.12 to $1.16 a share. Oracle expects cloud-based revenue for the quarter, excluding its acquisition of the healthcare IT company Cerner, of 28% to 30%.
Street consensus estimates call for August quarter revenue of $12.4 billion, up 8.8% from a year earlier, with adjusted profit of $1.15 a share.
For the November quarter, Street estimates call for revenue of $13.3 billion, up 8% from a year ago, with profit on an adjusted basis of $1.34 a share.
On the company’s last earnings call, CEO Safra Catz said her early read on Oracle’s May 2024 fiscal year is for unprecedented cloud demand, with growth on par or better than FY 2023.
The company is continuing to shift legacy customers to cloud-based versions of both its flagship database software and its suite of enterprise applications, including NetSuite and Fusion. But the Oracle story continues to be driven by the Oracle Cloud—known as OCI—and the outlook for the company’s role in AI. Among other things, it has benefited from a strong relationship with
Nvidia
(NVDA), which has given Oracle a generous allocation of GPU chips that it uses to offer AI computing services to customers.
“Our checks remain highly bullish on OCI demand trends,” TD Cowen analyst Derrick Wood wrote in a research note previewing the quarter. “Shares have moved a good deal this year, but we still think the OCI story is underappreciated.” Wood maintains an Outperform rating and $137 target price on Oracle shares.
Guggenheim analyst John DiFucci is similarly bullish. He maintains a Buy rating and $150 target on the stock. As DiFucci notes, the company previously forecast it can reach $65 billion in sales by fiscal 2026. Catz reiterated that projection last quarter, asserting “AI demand leaves us significant upside.” DiFucci says Street skepticism about Oracle’s ability to hit that target has faded, and he expects the company to reiterate its target at a meeting with analysts scheduled for Sept. 21 in Las Vegas.
DiFucci says Oracle remains his best idea, based on the company’s transition of applications to the cloud, the adoption of OCI as an alternative to other cloud providers, and the transition of the database business to the cloud. “The first is underway with a lot more room to go, the second is still at a very early stage, and the third is just at the beginning,” he wrote.
Monness Crespi Hardt analyst Brian White noted most software vendors so far have little to show from the AI trend, despite all the hype—but adds Oracle is different. He wrote that on the May quarter call, Oracle said it had signed OCI contracts with Gen AI customers worth more than $2 billion. “Oracle has shined” at training large language models, he said. White kept his Buy rating and $140 target price on the stock.
Write to Eric J. Savitz at eric.savitz@barrons.com