Oracle (ORCL) shares powered firmly higher Tuesday, potentially adding $40 billion in market value, after the database management group reported solid third quarter earnings that underscored its drive into AI technologies.
Through a series of partnerships with chipmakers such as Nvidia (NVDA) and rivals such as Microsoft (MSFT) , Oracle is looking to leverage the surge in artificial-intelligence investment into its growing cloud-services business, notably its Gen2 offering.
Group CEO Safra Catz said demand for the new infrastructure "substantially exceeds supply ... despite the fact we are opening new and expanding existing cloud data centers very, very rapidly" adding that related revenue is rising at an annualized rate of more than 50% and is likely to remain "in a hypergrowth phase ... for the foreseeable future."
"As demand for our cloud services continues getting stronger, our pipeline is growing even faster, and our win rates are going higher as well, Catz told investors on a conference call late Monday.
"As our supply constraints ease, revenue growth rates will accelerate higher as our capacity expands and we get into fiscal year 2025."
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For the three months ending in February Oracle revenue rose 7.1% to $13.28 billion, just shy of Wall Street forecasts., while earnings of $1.41 a share came in ahead of analysts' estimates.
Profit margins were also expanding, widening 2 basis points to just under 44%, thanks in part to "more efficiencies in our operating expenses, which continue to trend down as a percentage of revenue," Oracle said.
Oracle 'RPO' backlog hits $80 billion
Looking into the current quarter, Oracle estimates revenue growth in the region of 4% to 6%, largely matching the midpoint of Wall Street estimates. Earnings, Oracle said, are pegged in the region of $1.62 to $1.66 per share, just ahead of Wall Street forecasts.
The group's overall backlog, including unbilled revenue, rose around 29% to $80 billion, a tally that provides solid support for its capital spending plans while underlining the breadth of demand and the impact of recent deals with Nvidia.
Catz also told investors that Oracle expects "some very nice joint announcements with Nvidia next week."
Wedbush analyst Dan Ives said the backlog, known by analyst and investors as RPO, or remaining performance obligations, "blew away [Wall Street] expectations on the shoulders of robust cloud demand as AI demand is driving cloud growth across its business", calling it "the most important number" from last night's report.
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"Oracle also cited at least 40 new AI bookings that are over [$1 billion] have not come online yet with a massive $10 billion [capital-expenditure] budget planned for 2025 (vs. $7.5 billion in 2024) as AI demand is driving further data-center buildouts," Ives noted. "AI is accelerating cloud demand and this remains at the epicenter of our AI Revolution '1995 Moment' thesis."
Wall Street analysts were quick to adjust their price targets on Oracle following last night's earnings and outlook, with the overall median level rising $15 to $145 a share.
The highest on Wall Street comes from Mizuho, where Siti Panigrahi raised his price target $20 to $160 a share. The lowest is pegged at $105, by JPMorgan.
Oracle sees $65 billion in 2025 sales
D.A. Davidson analyst Gil Luria, who also pegs his Oracle price target at $105 and carries a neutral rating on the stock, was slightly more cautious.
"While commentary surrounding (Oracle Cloud Infrastructure) demand was positive, we await further evidence Oracle can achieve its ambitious fiscal 2026 goals organically," he said, referring to the group's forecast of $65 billion in sales.
JMP Securities analyst Patrick Walravens, meanwhile, boosted his current-year earnings estimate by 11 cents, to $5.57 a share, compared with the Wall Street consensus of $5.56. He said the shares are likely fairly valued after last night's after-hours move.
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"On the positive side, Oracle has three nice growth drivers in its" software as a service business, Gen2 Infrastructure Services and cloud database services, Walravens said.
He added that "primary challenges include supply-chain constraints, in particular the 'choke point' of power, to build cloud capacity to convert its AI training backlog, and the (2022) Cerner acquisition."
Oracle shares were marked 11.5% higher in mid-day Tuesday trading to change hands at $127.28, a move that would extend the stock's 2024 gain to around 20%.
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