Oracle Reports Spectacular Growth Thanks to Artificial Intelligence

Nvidia was long considered a benchmark in the field of Artificial Intelligence (AI) due to its Graphics Processing Units (GPUs), which played a central role in the training and deployment of AI models. Recently, however, the stock has lost popularity among investors due to concerns about slowed growth. This is evident considering that the stock has fallen 5% since the release of the second quarter results for the fiscal year 2025 on August 28. Despite impressive year-over-year increases – with a revenue jump of 122% to $30 billion and an adjusted earnings rise of 152% to $0.68 per share – the forecast of slowed revenue growth of 80% in the coming quarter is making investors nervous. Oracle, on the other hand, has gained significant attention this year as AI technology has noticeably accelerated its cloud business. The stock of the company, traditionally known for its database software, has risen by more than 11% following the first quarter results for the fiscal year 2025 (ending August 31). Oracle recorded an 8% year-over-year revenue increase to $13.3 billion in constant currency, exceeding the consensus estimate of $13.2 billion. The adjusted earnings rose by 17% to $1.39 per share, also above the estimate of $1.33. Particular attention was given to Oracle’s Remaining Performance Obligation (RPO), a measure of the total value of the company’s future contract services. RPO rose by 53% to a record value of $99 billion, indicating an impressive revenue pipeline likely to fuel long-term growth. Additionally, Oracle’s cloud revenue jumped by 22% year-over-year to $5.6 billion, while the revenue from cloud infrastructure increased by 46% to $2.2 billion. Management reported 42 additional cloud GPU contracts in the previous quarter, equivalent to $3 billion. The demand for Oracle’s cloud infrastructure currently exceeds supply, prompting the company to plan capacity expansions. This is reflected in an announced doubling of capital expenditures in fiscal year 2025 compared to the previous year – an ambitious step, but necessary given the rapidly growing demand for cloud infrastructure for AI applications. Customers rent Oracle’s infrastructure to scale their AI development. Goldman Sachs projects an annual growth rate of 22% for cloud services until 2030, which corresponds to an annual revenue of $1 trillion. Generative AI could account for $200 to $300 billion of these expenditures. Specifically, the market for Infrastructure as a Service (IaaS) – Oracle’s fastest-growing segment in the last quarter – could bring in $580 billion by 2030. With current IaaS revenue in the first quarter of the fiscal year amounting to $2.2 billion, Oracle is at the beginning of a significant growth cycle. Management expects the strong contract backlog to further drive revenue growth in fiscal year 2025, with a projected revenue increase in the second quarter between 8% and 10% in constant currency. Analysts believe this double-digit growth will continue in the coming years. With the expected market growth driven by AI, Oracle’s stock price is likely to rise further. Investors might consider buying Oracle shares, which are trading at an attractive price-earnings ratio of 25 – a discount compared to the Nasdaq-100 Index. In conclusion, it is worth noting that despite Oracle’s outstanding performance, the Motley Fool Stock Advisor analyst team sees other preferred stocks.