Oracle shares powered to a fresh record high in early Tuesday trading as analysts rushed to update their ratings and price targets on the software group following better-than-expected quarterly earnings and a solid near-term outlook.
Oracle (ORCL) is looking to expand its cloud-services business, anchored by its Gen2 offering tied to partnerships with Nvidia (NVDA) , Google (GOOGL) and Microsoft (MSFT) . It also is seeing solid growth from other key business lines, thanks in part to a surge in artificial-intelligence investments.
For the company's fiscal first quarter, which ended in August, infrastructure as a service, or IaaS, revenue rose 45% from a year earlier to $2.2 billion, well ahead of the 10% growth in software as a service revenue.
A new deal with Amazon Web Services (AMZN) is also slated to add to overall cloud revenue, Oracle said, as it scales its offering over the biggest hyperscaler systems.
"Needless to say, we think our multicloud strategy will expand the ubiquity and popularity of our differentiated technologies, especially the Oracle Database," CEO Safra Catz told investors on a conference call late Monday.
"This sizing flexibility and deployment optionality of our cloud regions continue to be significant advantages for us in the marketplace," she added.
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Looking into the current quarter, Oracle sees overall revenue rising between 8% and 10% from a year earlier, a forecast that was largely in line with Wall Street estimates. Catz told investors that she remained "very confident and committed to full-year total revenue growth growing double digits.”
Earnings were forecast in the region of $1.45 to $1.49 a share, nudging just ahead of Wall Street estimates.
Oracle's overall backlog nears $100 billion
The group's overall backlog, including unbilled revenue — known by analysts and investors as RPO, or remaining performance obligations — rose around 52% to $99 billion, a tally that could provide solid support for its capital-spending plans while underlining the breadth of demand and the impact of recent deals with Nvidia.
"We think IaaS remains the key growth driver, more than doubling in two years and should accelerate through the 2025 fiscal year, supported by cloud expansion plans," said CFRA analyst Angelo Zino, who reiterated his hold rating and $150 price target on Oracle stock.
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"After signing a multicloud deal with AWS, additional growth will be injected from locking up partnerships with the three biggest cloud providers over the last year," he added.
JMP analyst Patrick Walravens, who lifted his Oracle rating to 'market outperform' with a $175 price target, said the group was now starting to see real acceleration in revenue growth as it "successfully evolves into a leading strategic cloud platform services provider."
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"Thanks to [Chairman Larry Ellison’s] prescient investments in large Nvidia [graphics-processing-unit] clusters, 160+ cloud regions including sovereign and national security regions and a distributed and multi-cloud architecture, Oracle is poised to gain share of the massive cloud infrastructure services market (that exceeded $140 billion in 2023) and seems particularly well-positioned to capture share of generative-AI-related spending for the infrastructure and cloud services market," Walravens said.
Oracle capital spending 'something to watch': KeyBanc
KeyBanc Capital Markets analyst Jackson Ader noted, however, that Oracle's muted spending plans, which include around $2.3 billion in capital spending, suggest a "lingering question around the Company's ability to secure the infrastructure that it needs to make sure the [booked sales] flows into revenue in a timely fashion."
"The guidance for capex and [Oracle Cloud Infrastructure] growth was reiterated, so clearly the expectation from management is that it's a timing thing, but something to watch," said Ader, who nonetheless added $10 to his Oracle stock price target, taking it to $175 a share, while affirming an 'overweight' rating.
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D.A. Davidson analyst Gil Luria, who added $35 to his Oracle price target, taking it to $140, after last night's earnings, said demand for AI training would likely continue to lift the group's near-term sales.
"Demand for generative-AI compute remains a significant driver for [Oracle Cloud Infrastructure], with management noting they're continuing to add capacity that's leading to what they expect will be roughly $15 billion in capital expenditures this fiscal year," Luria said.
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Other analyst changes include a $25 price target boost from Piper Sandler analyst Brent Bracelin, who set it at $175 per share, as well as a $15 boost to $185 from Mizuho analyst Siti Panigrahi.
Morgan Stanley analyst Keith Weiss took his Oracle price target $20 higher, to $145.
Oracle shares rose 11.47% across the Tuesday session to close at $155.89, a move that extends the stock's six-month gain to around 36.6% and values the Santa Clara, California-based group at $430 billion. The stock hit an all-time high of $160.52 earlier in the session.
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