Oracle: On Clouds to Record Success

Oracle's shares surged to a new record high on Tuesday after analysts updated their ratings and price targets for the software group following better-than-expected quarterly results and a solid short-term outlook. Oracle is striving to expand its cloud service business, bolstered by its Gen2 offerings, which include partnerships with Nvidia, Google, and Microsoft. Other key business areas are also exhibiting solid growth thanks to a surge in investments in artificial intelligence. In the first quarter of the fiscal year, which ended in August, revenues from Infrastructure as a Service (IaaS) rose by 45% year-over-year to $2.2 billion, significantly higher than the 10% growth in Software as a Service (SaaS) revenues. A new deal with Amazon Web Services is also expected to contribute to the overall increase in cloud revenues, Oracle said, as it expands its offerings through the largest hyperscaler systems. "Our multicloud strategy will continue to expand the ubiquity and popularity of our differentiated technologies, particularly Oracle Database," CEO Safra Catz said during an investor call. “The flexibility in size and deployment options of our cloud regions remain significant advantages for us in the market.” For the current quarter, Oracle expects revenue to rise between 8% and 10% compared to the previous year, largely in line with Wall Street estimates. Catz also expressed confidence that full-year revenue growth will be in double digits. Profits were forecasted to be in the range of $1.45 to $1.49 per share, slightly above Wall Street estimates. Total order backlog, including non-billable revenues, rose by approximately 52% to $99 billion, which could support capital expenditure plans and underscores the impact of recent deals with Nvidia. "We think that IaaS remains the central growth driver, will more than double in two years, and will continue to accelerate through cloud business expansion plans until fiscal year 2025," said CFRA analyst Angelo Zino, who confirmed his hold recommendation and a price target of $150 for Oracle shares. JMP analyst Patrick Walravens raised his rating for Oracle to "Market Outperform" with a price target of $175, stating that the group is now seeing a real acceleration in revenue growth as it successfully evolves into a leading provider of strategic cloud platform services. Thanks to forward-looking investments by Chairman Larry Ellison in large Nvidia clusters, over 160 cloud regions, along with a distributed and multicloud architecture, Oracle is well-positioned to gain market share in the cloud infrastructure services sector. However, KeyBanc Capital Markets analyst Jackson Ader expressed concerns about Oracle's muted spending plans, which include around $2.3 billion in capital expenditures, posing an open question regarding the company's ability to secure the necessary infrastructure. Nevertheless, Ader raised his price target by $10 to $175 and confirmed the "Overweight" rating. D.A. Davidson analyst Gil Luria increased his price target by $35 to $140 and stated that the demand for AI training is likely to further boost short-term revenues. Other analysts, including Brent Bracelin of Piper Sandler and Siti Panigrahi of Mizuho, also significantly raised their price targets. Oracle shares rose 11.47% on Tuesday, closing at $155.89, increasing the stock's six-month gain to around 36.6% and valuing the Santa Clara, California-based company at $430 billion.