Source: PaxForex Premium Analytics Portal, Fundamental Insight
Oracle, renowned for its widely adopted database and enterprise applications, entered the cloud infrastructure market relatively late compared to industry leaders like Amazon Web Services, Microsoft Azure, and Google Cloud, making it barely noticeable in comparison. Despite this, the company's cloud infrastructure revenue for the quarter ending on Feb. 29 reached $1.8 billion. While this figure pales in comparison to Google Cloud's revenue, which surpassed $9 billion in the same period, Oracle's cloud infrastructure business is rapidly expanding, recording a remarkable 49% year-over-year growth. Much of this growth can be attributed to the escalating demand for computing capacity tailored for artificial intelligence (AI) workloads.
Despite facing stiff competition from established players in the cloud infrastructure market, Oracle sees an opportunity in the increasing need for AI computing capacity among both startups and enterprises. However, the limited availability of high-powered Nvidia GPUs and other AI accelerators presents a challenge. To address this demand and strengthen its position in the market, Oracle is heavily investing in expanding its cloud computing capacity, particularly focusing on AI. Despite these efforts, Oracle has struggled to keep up with the soaring demand, which has somewhat constrained its growth rate. Nonetheless, Oracle remains committed to its expansion plans, intending to allocate up to $7.5 billion for capital expenditures in the current fiscal year, a substantial increase compared to previous years.
During Oracle's earnings call, CEO Safra Catz provided investors with insight into the company's AI business, revealing that they have secured at least 40 new AI bookings worth over a billion dollars each, which are yet to be realized. This statement underscores Oracle's significant traction in the AI sector.
Catz further emphasized in the earnings release that the demand for Oracle's Gen2 AI infrastructure far outstrips supply, resulting in continued large contracts for reserving cloud infrastructure capacity. Despite Oracle's rapid expansion of cloud data centers, the demand for AI infrastructure remains robust.
While Oracle is capitalizing on the AI boom, cloud infrastructure still constitutes a relatively small portion of its overall business. Although overall revenue saw a 7% year-over-year increase in the latest quarter, cloud infrastructure accounted for less than 14% of the total revenue.
Cloud application revenue experienced a healthier growth rate of 14%, reaching $3.3 billion, while the segment encompassing both cloud and on-premise licenses witnessed a 3% decline in revenue. Apart from cloud infrastructure and select cloud applications, Oracle's traditional business segments showed less impressive performance.
As cloud infrastructure becomes a larger proportion of Oracle's total revenue, its growth trajectory is expected to accelerate. However, the long-term profitability of cloud infrastructure may not match that of software license sales, particularly if AI demand wanes unexpectedly or if industrywide capacity surpasses demand.
Although Oracle's stock appears relatively expensive, with a market capitalization of approximately $350 billion and a price-to-earnings ratio of around 25, the company's success in securing AI infrastructure business indicates promising growth prospects. If Oracle sustains its rapid growth in the cloud sector, the stock could offer attractive returns in the foreseeable future.
As long as the price is above 120.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 125.43
- Take Profit 1: 130.00
- Take Profit 2: 135.00
Alternative scenario:
If the level of 120.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 120.00
- Take Profit 1: 117.00
- Take Profit 2: 113.00
