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Oracle Hits Record High: Should You Invest After Q1 Cloud Success?
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Oracle (ORCL - Free Report) , the tech giant known for its database software and cloud computing services, has reached a new milestone as its stock surged 15% to hit a record high of $160.52 a share following the release of its first-quarter fiscal 2025 results. The surge in share price was primarily driven by impressive growth in the company's cloud division wherein demand for cloud infrastructure continued to outpace supply in the quarter, leaving investors wondering if now is the right time to ride Oracle's success story. (Read More: Oracle Q1 Earnings Surpass Estimates, Revenues Increase Y/Y).
Oracle announced robust fiscal first-quarter results, with total revenues reaching $13.3 billion, a 7% increase year over year in dollar terms and 8% in constant currency (cc). The company’s cloud services revenues surged 21% and 22% at cc to $5.6 billion, driven by substantial gains in both cloud infrastructure and applications. Of this total, $2.2 billion was generated from computing and storage rentals. The remaining performance obligation, which reflects booked sales, was $99 billion.
Oracle has been one of the top-performing large software stocks so far this year, having climbed 47.5% year to date compared with the Zacks Computer and Technology sector and the S&P 500’s growth of 13.6% and 14.4%, respectively.
Oracle's aggressive expansion in the cloud computing sector has positioned the company as a formidable player in the global cloud infrastructure market, which was estimated to be worth $602.31 billion in 2023 and is expected to witness a CAGR of 21.2% from 2024 to 2030, per Grand View Research Report.
With an impressive global network of 162 cloud datacenters either operational or under construction, Oracle is making significant strides in infrastructure development. The company's commitment to innovation is evident in its plans for an 800-megawatt datacenter equipped with extensive NVIDIA GPU clusters for large-scale AI model training, as well as its ambitious design for a gigawatt-scale facility powered by modular nuclear reactors.
In a strategic move to enhance its multi-cloud offerings, Oracle recently partnered with Amazon (AMZN - Free Report) -owned Amazon Web Services (AWS), complementing its existing collaborations with Microsoft (MSFT - Free Report) Azure and Alphabet (GOOGL - Free Report) -owned Google Cloud. This partnership will introduce Oracle Database@AWS, allowing customers to leverage Oracle's advanced database services on AWS infrastructure. The integration promises improved database and network performance, with Oracle Cloud Infrastructure (OCI) deployed within AWS datacenters. Set for preview by late 2024 and full availability in 2025, this service will offer seamless management through AWS tools and connectivity with various AWS services.
Simultaneously, Oracle has strengthened its partnership with Google Cloud, announcing the general availability of Oracle Database@Google Cloud across multiple regions in the United States and Europe. This collaboration enables customers to run Oracle's premium database services on OCI within Google Cloud datacenters, eliminating cross-cloud data transfer charges and potentially accelerating application migrations.
Oracle's cloud business projections reflect the company's confidence in its strategy, with expected total cloud revenue growth of 23-25% at cc for second-quarter fiscal 2025. The company anticipates its cloud infrastructure services to surpass fiscal 2024 growth by 50% in the coming year.
The Zacks Consensus Estimate for ORCL’s fiscal 2025 revenues is pegged at $57.83 billion, indicating year-over-year growth of 9.2%. The consensus mark for fiscal 2025 earnings is pegged at $6.20 per share, up 0.3% in the past 30 days. The figure indicates year-over-year growth of 11.51%.
Image Source: Zacks Investment Research
The recent surge in Oracle's shares also reflects the growing influence of artificial intelligence on cloud computing demand. According to Canalys, global cloud infrastructure spending increased 19% year over year to $78.2 billion in the second quarter of 2024, with a significant portion directed toward AI-related investments. Oracle has capitalized on this trend, establishing a strong reputation for handling generative AI workloads and attracting notable clients like Reka and Elon Musk's xAI.
Recently, Oracle announced the general availability of OCI Generative AI (GenAI) Agents with retrieval-augmented generation (RAG) capabilities and enhanced Oracle AI innovations that help customers turn their data into a competitive advantage by making it easier to apply AI to real-world business operations.
The company also launched generative development (GenDev) for enterprises, a groundbreaking AI-centric application development infrastructure. It provides innovative development technologies that enable developers to rapidly generate sophisticated applications. Oracle also introduced AI-powered capabilities for Oracle Fusion Data Intelligence that will help organizations extract maximum value from their data assets and gain a competitive edge in an increasingly analytics-driven business landscape.
Such innovative AI capabilities could prove to be a crucial differentiator in the increasingly AI-driven tech landscape, potentially solidifying Oracle's position in the competitive cloud infrastructure and services market.
Oracle operates in a highly competitive market, facing intense competition from established tech giants like Microsoft, Amazon and Google as well as newer players like Snowflake and Databricks.
While Oracle has a strong foothold in the database management and ERP software markets, its competitors are making significant inroads in the cloud space. AWS captured a 32% share of the global market during the second quarter of 2024. Microsoft won a 23% share of the market, while Google Cloud captured a 12% share, according to new data from IT market research firm Synergy.
It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape.
ORCL is trading at a premium with a price/book of 46.5X compared with the Zacks Computer-Software industry’s 9.33X, reflecting a stretched valuation.
ORCL’s Price/Book Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
Oracle's cloud growth strategy, financial projections and technological advancements make it a compelling case for potential investors. The company's strategic partnerships, focus on AI and expansion into key verticals demonstrate a forward-thinking approach, making the stock worth buying in the near term.
Image: Bigstock
Oracle Hits Record High: Should You Invest After Q1 Cloud Success?
Oracle (ORCL - Free Report) , the tech giant known for its database software and cloud computing services, has reached a new milestone as its stock surged 15% to hit a record high of $160.52 a share following the release of its first-quarter fiscal 2025 results. The surge in share price was primarily driven by impressive growth in the company's cloud division wherein demand for cloud infrastructure continued to outpace supply in the quarter, leaving investors wondering if now is the right time to ride Oracle's success story. (Read More: Oracle Q1 Earnings Surpass Estimates, Revenues Increase Y/Y).
Oracle announced robust fiscal first-quarter results, with total revenues reaching $13.3 billion, a 7% increase year over year in dollar terms and 8% in constant currency (cc). The company’s cloud services revenues surged 21% and 22% at cc to $5.6 billion, driven by substantial gains in both cloud infrastructure and applications. Of this total, $2.2 billion was generated from computing and storage rentals. The remaining performance obligation, which reflects booked sales, was $99 billion.
Oracle has been one of the top-performing large software stocks so far this year, having climbed 47.5% year to date compared with the Zacks Computer and Technology sector and the S&P 500’s growth of 13.6% and 14.4%, respectively.
Year-to-date Performance
Image Source: Zacks Investment Research
ORCL's Cloud Surge: Partnerships Fuel Growth Ambitions
Oracle's aggressive expansion in the cloud computing sector has positioned the company as a formidable player in the global cloud infrastructure market, which was estimated to be worth $602.31 billion in 2023 and is expected to witness a CAGR of 21.2% from 2024 to 2030, per Grand View Research Report.
With an impressive global network of 162 cloud datacenters either operational or under construction, Oracle is making significant strides in infrastructure development. The company's commitment to innovation is evident in its plans for an 800-megawatt datacenter equipped with extensive NVIDIA GPU clusters for large-scale AI model training, as well as its ambitious design for a gigawatt-scale facility powered by modular nuclear reactors.
In a strategic move to enhance its multi-cloud offerings, Oracle recently partnered with Amazon (AMZN - Free Report) -owned Amazon Web Services (AWS), complementing its existing collaborations with Microsoft (MSFT - Free Report) Azure and Alphabet (GOOGL - Free Report) -owned Google Cloud. This partnership will introduce Oracle Database@AWS, allowing customers to leverage Oracle's advanced database services on AWS infrastructure. The integration promises improved database and network performance, with Oracle Cloud Infrastructure (OCI) deployed within AWS datacenters. Set for preview by late 2024 and full availability in 2025, this service will offer seamless management through AWS tools and connectivity with various AWS services.
Simultaneously, Oracle has strengthened its partnership with Google Cloud, announcing the general availability of Oracle Database@Google Cloud across multiple regions in the United States and Europe. This collaboration enables customers to run Oracle's premium database services on OCI within Google Cloud datacenters, eliminating cross-cloud data transfer charges and potentially accelerating application migrations.
Oracle's cloud business projections reflect the company's confidence in its strategy, with expected total cloud revenue growth of 23-25% at cc for second-quarter fiscal 2025. The company anticipates its cloud infrastructure services to surpass fiscal 2024 growth by 50% in the coming year.
The Zacks Consensus Estimate for ORCL’s fiscal 2025 revenues is pegged at $57.83 billion, indicating year-over-year growth of 9.2%. The consensus mark for fiscal 2025 earnings is pegged at $6.20 per share, up 0.3% in the past 30 days. The figure indicates year-over-year growth of 11.51%.
Image Source: Zacks Investment Research
The recent surge in Oracle's shares also reflects the growing influence of artificial intelligence on cloud computing demand. According to Canalys, global cloud infrastructure spending increased 19% year over year to $78.2 billion in the second quarter of 2024, with a significant portion directed toward AI-related investments. Oracle has capitalized on this trend, establishing a strong reputation for handling generative AI workloads and attracting notable clients like Reka and Elon Musk's xAI.
Recently, Oracle announced the general availability of OCI Generative AI (GenAI) Agents with retrieval-augmented generation (RAG) capabilities and enhanced Oracle AI innovations that help customers turn their data into a competitive advantage by making it easier to apply AI to real-world business operations.
The company also launched generative development (GenDev) for enterprises, a groundbreaking AI-centric application development infrastructure. It provides innovative development technologies that enable developers to rapidly generate sophisticated applications. Oracle also introduced AI-powered capabilities for Oracle Fusion Data Intelligence that will help organizations extract maximum value from their data assets and gain a competitive edge in an increasingly analytics-driven business landscape.
Such innovative AI capabilities could prove to be a crucial differentiator in the increasingly AI-driven tech landscape, potentially solidifying Oracle's position in the competitive cloud infrastructure and services market.
Stiff Competition, Stretched Valuation Remain Overhangs
Oracle operates in a highly competitive market, facing intense competition from established tech giants like Microsoft, Amazon and Google as well as newer players like Snowflake and Databricks.
While Oracle has a strong foothold in the database management and ERP software markets, its competitors are making significant inroads in the cloud space. AWS captured a 32% share of the global market during the second quarter of 2024. Microsoft won a 23% share of the market, while Google Cloud captured a 12% share, according to new data from IT market research firm Synergy.
It is also important to consider whether the stock's current valuation accurately reflects the company's long-term growth potential and ability to navigate the competitive landscape.
ORCL is trading at a premium with a price/book of 46.5X compared with the Zacks Computer-Software industry’s 9.33X, reflecting a stretched valuation.
ORCL’s Price/Book Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
Oracle's cloud growth strategy, financial projections and technological advancements make it a compelling case for potential investors. The company's strategic partnerships, focus on AI and expansion into key verticals demonstrate a forward-thinking approach, making the stock worth buying in the near term.
Oracle currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.