Oracle is the IBD Stock of the Day, as the large-cap software stock is rising from a flat base on the strength of an analyst upgrade. ORCL stock was up more than 3%.
The software giant's shares have gained 46% in 2023, as investors have focused on its potential to benefit from artificial intelligence applications running on its massive cloud network. Oracle stock jumped 3.3% to close at 120.65 on the stock market today.
Oracle stock holds a buy point of 127.54 from a flat base formed in June. Shares are nearing a potential early entry point of 121.36.
Further, while Oracle will not report its fiscal first-quarter 2024 earnings until next month, there are earnings this week from software players Salesforce and MongoDB that could be relevant to the market for ORCL stock.
Rising On AI-Focused Upgrade
UBS analyst Karl Keirstead published a report Tuesday that upgraded ORCL stock to a buy from neutral. Further, UBS upped ORCL's target price to 140 from 120. He believes the company's potential to benefit from AI has not been fully recognized.
"Oracle has carved out an underappreciated edge in terms of its GPU (graphics processing unit) capacity as well as its OCI (Oracle Cloud Infrastructure) architecture," Keirstead said in a note to clients. Keirstead added that the advantage should help drive new customers and usage of its cloud software.
After an initial 3.5% gain after the opening bell, Oracle stock climbed 3.2% to 120.50 in recent stock market action.
The AI-boom is driving intense demand for GPUs, as evidenced by the massive growth of Nvidia . Because of that demand, UBS expects GPU supply constraints will boost Oracle stock.
"Oracle is benefiting from outsized allocations of Nvidia GPUs relative to its size," Keirstead wrote. "We could be sitting in front of 6-12 months of GPU shortage noise and we haven't even seen the $2 billion in AI startup commitments convert to OCI usage."
Oracle Stock: Up 46% This Year
The company already has benefited this year from the excitement around AI. To that point, Oracle stock opened trading Tuesday up 46% year-to-date.
"We are cognizant that (Oracle is) already viewed as an AI winner by a large swath of investors," the UBS report said. "That said, in our view, the AI story still has plenty of time/room to play out."
Oracle's fiscal first-quarter earnings are expected to be released in the middle of September. For the quarter ended Aug. 31, analysts polled by FactSet are expecting Oracle to post $12.4 billion in revenue, up 8.7% from the same period last year.
The company's stock reached a record 127.54 on June 15, shortly after a June 12 earnings report that beat analyst expectations. After pulling back, ORCL stock has maintained a flat base, according to MarketSmith pattern recognition.
A multiyear effort has pushed Oracle's giant database software business into the cloud. Piper Sandler analyst Brent Bracelin maintains on overweight rating on Oracle. In a report published last month, Bracelin cited a "bull-case thesis" that the company's cloud transformation could reach 40% of its sales mix within two years.
"Emerging AI tailwinds could further augment this cloud shift and drive a possible return to double-digit revenue growth," Bracelin wrote. "Notably, broad-based OCI interest across both enterprises and AI startups has contributed to $2B of AI-driven backlog."
Oracle Stock: Technical Ratings
The IBD Stock Checkup tool shows that Oracle has a Composite Rating of 93 out of a best-possible 99. The rating means Oracle stock currently outperforms 93% of all stocks based on fundamental and technical stock-picking criteria.
In addition, shares have a Relative Strength Rating of 94, which measures how a stock's price performance over the last 52 weeks holds up against other stocks in IBD's database.
Beyond that, Oracle stock has an Accumulation/Distribution Rating of B+. That rating measures daily price and volume changes in institutional ownership of a stock for the prior 13 weeks. A grade of A signals heavy institutional buying and B indicates moderate.
