It's been a while since database software giant Oracle had this many bulls on Wall Street.
Oracle stock picked up a pair of upgrades to positive ratings this week, following a strong earnings report on Monday. There is growing confidence about the 46-year-old company's shift from a legacy database software provider to a cloud-services company. The firm is also a popular pick to benefit as enterprises adopt generative artificial intelligence tools.
With the upgrades, more than half of the 35 analysts following Oracle stock have a buy or equivalent rating, according to FactSet. One year ago, just over 40% of Wall Street analysts considered Oracle a buy.
Oracle Stock Upgraded Following Q3 Earnings
Argus Research on Thursday upgraded its outlook for Oracle stock to buy from hold.
"Fiscal 3Q24 marked the first quarter when rapidly growing cloud revenue crossed over to become a higher proportion of revenue than the company's legacy license support revenue," wrote Argus Research analyst Joseph Bonner. "We take this to mean that cloud revenue should become an even bigger driver of total revenue in coming quarters."
The report set a target price of 145 for Oracle stock, implying 15.5% upside from the stock's closing price Wednesday.
Bonner added that Oracle has the "high class issue of demand outstripping its ability to service that demand."
To that point, Oracle said Monday that it had more than $80 billion in remaining performance obligations (RPO). Oracle Chief Executive Safra Catz told analysts that the number underscored strong demand for its cloud infrastructure business, helped by AI. Oracle's cloud infrastructure business, called OCI, is a key part of the company's cloud transition.
On Tuesday, analysts at William Blair also upgraded their outlook for Oracle to a positive outperform from a neutral market perform.
William Blair analyst Sebastien Naji said Oracle's RPO was "the big surprise" from the report. He wrote that he expects larger AI benefits for Oracle's cloud infrastructure business are still to come.
"With the company having laid the groundwork over the last few years with its investments in OCI, we believe Oracle is entering a new phase of higher growth," Naji wrote to clients. He added that "that will drive a step-up in profitability and free cash flow for years to come."
Winning Back Wall Street
Oracle now has 19 buy or overweight ratings, compared to 15 neutral and one sell rating, according to FactSet. The last time Oracle had majority buy ratings among analysts was the close of the first quarter in 2018 (FactSet historical data on analyst ratings is quarterly).
The numbers speak to a turnaround for Oracle stock's perception. As recently as August 2021, Oracle stock had just seven buy ratings out of 28 analyst recommendations, according to FactSet.
The company is emerging from a long and occasionally bumpy transition — from a legacy on-premises database software provider to a subscription-based model powered by cloud computing. Oracle was late to the cloud, however. And the company still trails market leaders Amazon and Microsoft by a wide margin.
To be clear, there are still some questions about Oracle's ability to compete with cloud computing's big three, which also includes Alphabet-owned Google. Both Microsoft and Amazon, for instance, have near unanimous buy ratings from analysts, according to FactSet tracking.
BofA Securities analyst Brad Sills maintained a neutral view of Oracle following the report.
"While Oracle is showing signs of higher growth with its (software-as-a-service) applications and cloud infrastructure through the Generation 2 release, the cloud transition is taking longer than expected to impact the numbers," Sills wrote to clients following Oracle's earnings release Monday.
Cloud gains, he added, are "more than offset with larger legacy and low growth revenue segments, such as on-premise license, hardware, and more."
Oracle Outlook
Oracle's projection of roughly 5% sales growth for the current quarter was slightly below consensus expectations. But Catz also said Monday that the company is "firmly committed" to longer-term prior guidance for fiscal year 2026, which includes a revenue target of $65 billion.
Analysts project Oracle will tally $57.8 billion in sales for the upcoming fiscal 2025, according to FactSet. Oracle's fiscal years end with May.
"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 said. "As our supply constraints ease, revenue growth rates will accelerate higher as our capacity expands and we get into fiscal year 2025."
Meanwhile, the company is expanding its generative AI software tools. Oracle announced Thursday a range of new generative AI offerings with its Fusion Cloud Applications suite.
Oracle also announced an expansion of Oracle Database@Azure. The collaboration offers Oracle's cloud infrastructure and database software running in databases operated by Microsoft's Azure software. With the expansion, the product will be available in 15 regions globally, Oracle said.
Oracle Stock: Technical Ratings
On the stock market today, Oracle stock was down slightly at 125.25 in early trading. But shares have gained more than 10% since Oracle reported better-than-expected earnings late Monday.
Oracle stock is up more than 20% this year, compared to a roughly 8% gain for the S&P 500. With its earnings gains, Oracle is hovering around a 127.54 buy point from a 38 weeklong consolidation pattern, according to IBD MarketSurge charts.
