- Oracle had a robust quarter, highlighted by impressive cloud growth and margins.
- The demand for AI-centric services and infrastructure surpasses supply, with Oracle quickly ramping up to meet it.
- Analysts’ response has been overwhelmingly positive, propelling the market to new heights.
Oracle’s launch of Gen-2 Cloud services, though initially slow, emphasizes quality over quantity, proving to be a worthwhile strategy. The company’s Q3 performance and outlook affirm the arrival of the second wave of AI. This wave integrates cutting-edge chips from NVIDIA and Advanced Micro Devices into next-gen cloud infrastructure, heralding a significant advancement in technology adoption. The key insight from the report is the surge in demand for AI infrastructure, surpassing supply, as Oracle diligently works to expand and meet this demand, ultimately enhancing shareholder value.
“We anticipate continued reception of large contracts reserving cloud infrastructure capacity due to the overwhelming demand for our Gen2 AI infrastructure, which far outstrips supply—despite our rapid expansion of new and existing cloud data centers,” stated CEO Safra Catz.
Oracle Delivers: Market Applauds the Update
Oracle’s Q3 results, while mixed with revenue meeting expectations, showcased strength in its cloud business, the primary growth driver. Total Cloud revenue saw a 25% increase, propelled by a notable 49% surge in IaaS and a 14% rise in SaaS revenue. Fusion ERP climbed 18%, while NetSuite Cloud advanced by 21%.
Noteworthy catalysts from the report include the record-high RPO at $80 billion, reflecting a 29% increase fueled by securing major new clients. Nearly half of the RPO is anticipated to translate to revenue within the next four quarters, indicating substantial growth in infrastructure capabilities and revenue prospects.
The company’s expanded operating margin, driven by cost controls and revenue leverage, led to a 12% increase in adjusted operating income, an 18% rise in net income, and a 16% uptick in adjusted earnings. With adjusted earnings surpassing expectations by $0.03, the robust margins are likely to persist into Q4 and beyond.
While Oracle refrains from providing specific guidance, its current momentum indicates sustained growth over the upcoming quarters. The company foresees continued hyper-growth in its Gen2 Cloud business for the foreseeable future, with recent additions of AI-powered features tailored for health-related firms. Additionally, a strategic partnership with NVIDIA is on the horizon, set to be unveiled in mid-March and expected to enhance AI infrastructure and services.
Analysts Bullish on Oracle’s Stock Outlook
The response from analysts to Oracle’s Q3 results has been overwhelmingly positive, with numerous upgrades to Buy ratings and price target revisions. The stock is now trading well above initial consensus, predicting a potential 20% further upside inclusive of the recent surge.
With a new high target of $165 (equating to a 30% increase), there is optimism for higher targets in the coming months. Analysts attribute their positive outlook to Oracle’s booking strength, RPO metrics, and advancements in cloud and AI strategies. Wedbush analyst Dan Ives reaffirms Oracle’s pivotal role in the firm’s AI investment strategy.
Technical Analysis: Oracle Makes a Breakthrough
Oracle’s recent price action, complemented by a post-release surge, indicates a 13% to 15% increase aligning with pre-release estimates, and further growth may ensue following analysts’ revisions.
Based on technical projections and market support at new highs, Oracle’s stock could potentially rally by 30% over the next two quarters. This projection, in line with analysts’ revised forecasts, suggests accelerated gains. However, there is a risk of profit-taking, which might cap gains at current levels and prompt a pullback to around $120 before embarking on a fresh ascent.
Source: Original Post