Oracle in my books
In my book “The Rules of Super Growth Stocks Investing“:
- Section 2-3
- Section 3-3 provides an in-depth analysis of the company Oracle.
And the book “The Rules of 10 Baggers“:
- Section 1-3
- Section 3-2
Oracle’s illness for long time
Cloud computing
I wrote in “How does Oracle, the database software monopoly, make money?” What are the prospects? “In the article and in my book, I emphasized that Oracle’s stock price has performed poorly in the past twenty years and has not been able to win the caring eyes of investors. There is only one reason–“The fundamental reason is that Oracle has not been able to cloud-based its products. success.”
Solid results
But this problem that has plagued Oracle for many years seems to have been improved in the past year or two, and it has delivered impressive results.
Although Oracle is not one of the largest cloud companies, it accounts for about 2% of the global cloud market, according to Statista.
Riding the AI wave
Cloud computing is one of the first industries to clearly benefit from artificial intelligence. The second quarter financial report released by Oracle on September 9, 2024 confirmed this trend; what is special is that Oracle has not only actively caught up in cloud computing and has made some achievements, but also has taken advantage of the artificial intelligence trend in the past two years to move to the cloud. Computing, artificial intelligence, and integration with Oracle’s existing databases and enterprise software–it can be seen from Oracle’s results in the past year or two: Oracle’s efforts and product strategies in recent years have indeed won customers and markets.
In the past, Oracle lost to Amazon AWS, Microsoft Azure, and Google’s GPC in the field of general cloud computing; but a different situation has emerged in the field of artificial intelligence cloud infrastructure. Oracle is rapidly building cloud data centers equipped with Nvidia’s graphics processing units (GPUs) and winning billions of dollars in business from customers who want artificial intelligence cloud data centers.
OCI
Oracle’s cloud infrastructure business is called OCI (Oracle Cloud Infrastructure). The company is rapidly building new data centers to meet AI-driven needs. There are 162 cloud data centers in operation and under construction around the world.
The CEO stated in the second quarter financial report meeting released on September 9, 2024: Capital expenditures, which can be regarded as indicators of data center construction, reached US$2.3 billion last quarter. Capital expenditures in 2025 will be approximately twice those in 2024.
It’s not easy indeed
I think Oracle’s transformation will not be easy for the following reasons:
- Oracle is a giant company with a market capitalization of over US$400 billion, and the probability of failure in any major strategic change is very high.
- Oracle has been suffering from chronic illness for at least 20 years, and it carries a heavy burden.
IBM vs. Oracle
Just compare it to IBM, another company of the same level, and the answer is obvious – IBM is carrying out changes such as cloud and artificial intelligence. Even before Oracle, IBM’s two major businesses of cloud and artificial intelligence were already world-leading more than ten years ago. At that time, Oracle was insignificant in these two aspects. IBM even has an information consulting department, a powerful weapon that can assist these two businesses; but IBM has so far been unable to deliver results that satisfy investors.
Regarding IBM, please see my post for details: “How does IBM make money? What’s next?“
What did Oracle do right?
Business focus shifted
Oracle was first famous for its database software, and later it has long relied on large-scale enterprise software to make money. It is currently focusing on developing cloud infrastructure business, providing computing and storage space rental services, and competing with Amazon, Microsoft, and Alphabet’s Google. Oracle’s cloud business has built a reputation on generative AI workloads.
Product innovation
In addition to the successful change of business focus and the success of this major strategy, Oracle has also cloudified the company’s core, monopolistic database and long-term popular enterprise software. It has also established partnerships with Amazon and Alphabet’s Google to sell Oracle’s cloud-based databases and enterprise software on Amazon Cloud and Google Cloud Platform.
Please note: This cooperation is not easy. Oracle, Amazon and Alphabet’s Google are direct competitors in the cloud service business. You may be wondering why Microsoft is omitted from the top three cloud providers? In addition to being a direct competitor in the cloud services business, Microsoft’s database and enterprise software are Oracle’s long-term rivals. Amazon and Alphabet’s Google basically do not have databases and enterprises that are large enough to compete with Oracle. Software products.
Famous customers
OCI is particularly proud of its customers, including Reka and Tesla’s xAI. Moreover, OCI has even successfully obtained a thorn in the side of the U.S. government, trying every possible means to ban TikTok, which is currently the most popular in the world, from its cloud hosting contract in the United States.
Oracle announced in its fourth quarter earnings conference on March 10, 2025 that it had signed cloud agreements with several large technology companies including OpenAI, xAI, Meta, and AMD, with a value of more than $48 billion.
How does it actually perform?
2024 Q2 financial report
The key points of Oracle’s second-quarter financial report released on September 9, 2024 are as follows:
- Revenue increased 7% year-on-year to $13.3 billion
- Non-GAAP net profit increased 18% annually to US$4 billion, and GAAP net profit was US$2.9 billion.
- Oracle’s cloud business revenue grew 21% to $5.6 billion, in line with expectations. Among them, US$2.2 billion comes from the rental computing and storage business (IaaS), and US$3.4 billion comes from the SaaS business.
- Oracle’s remaining performance obligations (RPO, a measure of booked sales) surged 53% to $99 billion.
Such results caused the company’s stock price to close up 11.44% the next day.
Artificial Intelligence Business Results
In June this year, Oracle executives elaborated on the company’s cloud business architecture strategy to support AI expansion. Oracle has signed 30 sales contracts worth more than $12.5 billion, including a partnership with OpenAI, whose ChatGPT is trained on Oracle’s cloud platform. In addition, Oracle has also cooperated with Microsoft and Google to promote cloud platform interconnection, which will help attract more customers who use multiple platforms at the same time.
Outlook
Outlook released by the company
The CEO said revenue will achieve double-digit growth in the company’s fiscal year ending in May 2025; analysts on average forecast growth of 9.4%. She also said cloud infrastructure revenue will grow faster than in the previous fiscal year.
Oracle itself predicts that revenue growth in each quarter of this fiscal year will exceed the previous quarter, and OCI revenue will grow by more than 50%.
Financial forecasts have been raised again and again
Oracle stated in March 2024 that the previous outlook for fiscal year 2026 may be too conservative. Doug Kehring, Oracle’s executive vice president, went further at the annual briefing to financial analysts on September 13, 2024: The cloud business prospects are optimistic. Oracle expects to generate revenue of at least US$104 billion in fiscal year 2029. This move immediately caused the company’s stock price to rise 8% during next day trading sesion, pushing the stock price to a record high. With a total market value of $480 billion, founder Ellison’s net worth briefly surpassed Amazon founder Jeff Bezos to become the world’s second-richest person.
Oracle also raised its revenue forecast for fiscal 2026 to at least US$66 billion from the previous US$65 billion. Analysts on average estimate Oracle’s fiscal 2026 revenue to be $64.5 billion.
Wall Street’s View
Piper Sandler ranks Oracle as the “four giants in cloud computing” along with Amazon, Microsoft and Alphabet’s Google. Among them, Oracle is expected to maintain the highest growth rate, and the scale of OCI is expected to increase 10 times by 2032.
Long-term outlook
Oracle executives predict that revenue will double and exceed $100 billion within five years, and Oracle’s leading position in database software will be consolidated.
Oracle executives are confident about revenue growth in the next few years, predicting that in the 2025 fiscal year ending in May 2025, the company’s revenue will increase by about 10% annually, becoming the second fastest expanding company since 2011. Annual record.
In September 2024, Oracle Executive Vice President Doug Kehring said the company will generate more than $66 billion in revenue in fiscal 2026 and more than $104 billion in fiscal 2029.
This suggests that growth will accelerate significantly, bringing the compound annual growth rate to over 16%, almost doubling the current compound annual growth rate of 9%. Ellison also called the revenue target of more than $100 billion “easily achievable,” with revenue of $53 billion for fiscal 2024, meaning the company believes revenue will almost double in five years.
Capital market performance
Share price
As of September 10, 2024, Oracle’s stock price performance is as follows:
- Up 49.81%, year to date
- Up 23.03% over the past year
- Increased 190.03% in the past year
Valuation
The price-to-earnings ratio is still less than 22 times. That’s lower than Microsoft’s 30x and lower than the Nasdaq average of about 24x.
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