Source: PaxForex Premium Analytics Portal, Fundamental Insight
Oracle's shares have shown a relatively subdued performance compared to the broader market over the past year, recording a modest 25% increase, while the Nasdaq-100 Technology Sector index, dominated by tech stocks, has surged by almost 45%. Despite this, the company, known for its database and cloud services, has recently gained attention due to its foray into artificial intelligence (AI).
The spotlight on Oracle intensified following the release of its fiscal 2024 third-quarter results last month, ending Feb. 29. Investors celebrated as the company not only surpassed expectations but also demonstrated a significant enhancement in its revenue stream attributed to the escalating demand for its AI solutions. Yet, the looming question remains: Can Oracle effectively leverage the AI opportunity, outperform the broader market in the long term, and potentially achieve a trillion-dollar valuation by 2030?
In fiscal 2018, Oracle reported revenue of $39.8 billion. As fiscal 2024 draws to a close, the company is poised to achieve total revenue of $53.2 billion, marking a six-year compound annual growth rate (CAGR) of 5.6%. For the ongoing fiscal year, Oracle anticipates a 6.6% increase in revenue.
Projections indicate that Oracle's top-line growth rate will see an uptick over the next couple of years, reaching 10% by fiscal 2026. The expanding adoption of cloud-based enterprise AI applications presents a promising avenue for Oracle's growth beyond fiscal 2026. With the cloud-based AI services market projected to soar from an estimated $43 billion in 2022 to an anticipated $887 billion in 2032, as per Valuates Reports researchers, Oracle investors have reason to be optimistic about the company's prospects.
Oracle's fiscal third quarter saw the company rake in $9.96 billion in revenue from its cloud services business, reflecting a robust 12% increase from the previous year. This segment now constitutes 75% of the company's total revenue, up from 72% in the corresponding quarter of the previous year. Moreover, the business's growth trajectory appears set to accelerate, with Oracle's remaining performance obligations witnessing an impressive 28% year-over-year surge to $80 billion.
The notable surge in performance obligations can be attributed to the large new cloud infrastructure contracts Oracle secured during the quarter for its AI-centric Gen2 cloud infrastructure. CEO Safra Catz highlighted the escalating demand for Oracle's Gen2 AI cloud infrastructure in the earnings release, acknowledging that the company is rapidly expanding its cloud data center footprint to keep pace with demand.
Oracle's strategic focus on bolstering and enlarging its data center infrastructure is expected to position it favorably in the burgeoning cloud-based AI market in the long run. However, the pivotal question remains: Will these efforts suffice to propel Oracle into the trillion-dollar club?
As previously noted, Oracle's revenue is forecasted to reach $63.6 billion by fiscal 2026, with a growth rate exceeding 10% by the year's end. Should Oracle sustain this momentum and achieve a compound annual growth rate (CAGR) of 12% over the subsequent five fiscal years, its revenue could surge to approximately $112 billion by fiscal 2031, culminating in mid-2030.
Considering that companies in the U.S. technology sector typically command a price-to-sales ratio of 7.1, Oracle, if trading at a comparable multiple in 2030, could attain a market capitalization of approximately $796 billion. While this falls shy of the coveted $1 trillion market cap threshold, it implies a potential increase of 140% in Oracle's stock value from current levels within that timeframe. Moreover, if Oracle sustains accelerated growth driven by its AI-related ventures, it may inch closer to, or even surpass, the trillion-dollar milestone.
Furthermore, given that the company is presently trading at 6.5 times sales - a markdown compared to the tech sector's average - investing in this AI-focused stock appears to be a compelling choice. Oracle appears primed for substantial long-term upside owing to its strengthening AI capabilities.
As long as the price is above 110.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 114.43
- Take Profit 1: 120.00
- Take Profit 2: 125.00
Alternative scenario:
If the level of 110.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 110.00
- Take Profit 1: 105.00
- Take Profit 2: 100.00