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Oracle made an aggressive push into the cloud, first with its own software and then with the launch of Oracle Cloud.
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When
Oracle
releases financial results after markets close on Monday, the focus will be on how the cloud business is doing, the future impact of the generative AI trend and whether it sees an impact from tougher macro conditions . Optimism is high.
Oracle
(ticker: ORCL) shares have soared in recent weeks amid growing belief that the company’s cloud business is well positioned to benefit from the growing AI trend. Last week, the stock hit an all-time high, briefly breaking above the $110 level, reaching a market valuation of nearly $300 billion. Oracle shares are up more than 30% since March.
A few days ago, in a note previewing the quarter, Piper Sandler analyst Brent Bracelin repeated his overweight rating on the stock, while pushing back his price target to $130 from $104.
According to him, after a decade of weak growth, we are at the beginning of a new era for the enterprise databases and applications company. He believes Oracle will see 7% growth for the May 2023 fiscal year, adjusted for currency, with 9% to 11% growth over the net two to three years, as well as EPS growth two digits.
What has mainly changed is Oracle’s aggressive push towards the cloud, first with its own software, then with the launch of Oracle Cloud, as Barrons noted in a February 2021 cover story and reiterated in an article last October that included a rare interview with CEO Safra Catz. Since then, the stock has rebounded 70%.
“Customers who compare us to other clouds are often amazed,” Catz said at the time. “Why are all these car companies – Toyota,
Nissan
,
Mazda
—why do they do all their high performance work in Oracle Cloud? Is this our charming bedside manner? Probably not. Is it because it’s faster, cheaper and safer? Ding, ding, ding!
Bracelin notes that he sees job postings for engineers with experience working with Oracle Cloud from enterprise customers such as
ABM Industries
(ABM),
Block
(SQ), Cox Enterprises and Subaru, as well as software consultants at companies such as
Accenture
(ACN),
Infosys
(INFY), and
Cape Gemini
.
Oracle also benefits from strong customer relationships, a leading cloud platform, and a close relationship with
Nvidia
(NVDA), which supplies chips to almost every cloud provider, to become a surprisingly compelling AI game.
TD Cowen analyst Derrick Wood also recently repeated his outperformance rating, while raising his price target to $117 from $100. Wood notes that his channel audits reveal strong levels of demand for Oracle Cloud capacity, with more mixed recent demand for software-as-a-service applications amid some buyer caution. But he says the cloud is where the focus is, “especially in the face of a new round of AI computing.”
Wood thinks AI is going to be a bigger driver of cloud computing consumption from here, which he says could be up from his cloud growth forecast of 50% over the next year. fiscal year 2024.
For the quarter, Street consensus estimates call for May quarter revenue of $13.7 billion, up 16%, with adjusted earnings of $1.57 per share.
Oracle’s forecast called for revenue growth of 17% to 19% at constant currency, including the company’s recent acquisition of Cerner, with the currency down two percentage points. The company said total cloud growth, including Cerner, would be 51% to 53% in constant currency, or 49% to 51% as reported. Oracle also forecast total cloud growth in the fourth quarter excluding Cerner to be over 30% in constant currency.
Oracle’s forecast calls for adjusted EPS for the May quarter in the range of $1.59 to $1.63 per share in constant currency, or $1.56 to $1.60 as noted.
For the August quarter, Street estimates forecast revenue of $12.3 billion and adjusted earnings of $1.16 per share.
Write to Eric J. Savitz at eric.savitz@barrons.com