Oracle (ORCL, Financial) stock has made an impressive rally in the past couple of months as it rides the waves of artificial intelligence (AI) and digital transformation. The enterprise software juggernaut, once revered for its stronghold in on-premises enterprise databases, is effectively transitioning towards cloud-based solutions. Oracle's robust financial performance points to the remarkably successful metamorphosis of the tech titan.
Recent earnings results
Oracle recently released its fourth quarter earnings report for fiscal year 2023, where it quashed concerns that it was falling behind. Its earnings report showed a marked acceleration in cloud growth and a surge in market share.
Late last month, Oracle unveiled its powerful generative AI features, which it aims to integrate into its HR software. The software behemoth aims to increase business value, bolster productivity and smooth HR processes.
Oracle's generative AI capabilities range from generating content from a given prompt to suggesting and summarizing. Hence, it can effectively reduce friction in vital HR functions, supercharging its product offering.
In the realm of enterprise software, Oracle holds a dominant position. Traditionally a heavyweight in on-premises database software, the company continues to make strides in the cloud era, demonstrating its ability to thrive amidst a seismic shift in the industry. The fiscal fourth quarter brought reassuring news for investors, with Oracle posting an 18% bump in revenue and adjusted earnings per share of $1.67, surpassing analyst expectations.
Oracle continues to do remarkably well transitioning to subscription and usage-based cloud computing. In its most recent quarter, its cloud revenues grew by an amazing 54%, with over 70% jump in its infrastructure-as-a-service business.
These results are reflected in its robust profitability profile, which continues to turn heads in its niche. A glance at its GuruFocus profitability metrics shows an overall profitability rank of 9 out of 10, with most of its metrics ahead of its sector averages. Moreover, its growth rank is also at an excellent 8 out of 10, despite its competition over the years in its on-premises enterprise database business.
Valuation
The GF Value chart does rate the stock as modestly overvalued following its recent rally. On the positive side, the forward price-earnings ratio of 21 seems fair.
The company's powerful performance has unsurprisingly led to upgrades in ratings by Wall Street analysts.
Oracle's AI foray could be massive
At the heart of Oracle's AI potential lies its massive cloud database. Its powerful position as a database giant enables it to effectively leverage extensive data for AI, translating into massive long-term opportunities for private and secure machine learning services.
Moreover, as the Federal Trade Commission initiates a review of the competition in the cloud space, Alphabet's (GOOG, Financial)(GOOGL, Financial) Google voiced concerns over the advantages that companies such as Microsoft (MSFT, Financial) and Oracle seem to enjoy. Google's gripe revolves around these companies leveraging their dominance in the non-cloud markets to build their cloud products, potentially locking in a colossal customer base over the long run. However, it seems doubtful that the FTC would interfere on behalf of a behemoth like Google.
Larry Ellison, Oracle's founder, recently highlighted the appeal of the company's "Gen2" cloud. The platform can effectively cater to the burgeoning demand for optimized AI infrastructure by drawing enterprise and startup customers. Moreover, Ellison talked about how top tech giants like (NVDA, Financial) and startups such as Cohere employ Oracle's cloud clusters.
My outlook
As an enterprise software titan, Oracle is deftly transitioning to cloud-based solutions, leveraging AI in the process. The company's integration of potent generative AI features into its HR software heralds a new era of operational efficiency and value in its business offerings. Additionally, Google's grievances about Oracle exploiting its non-cloud stronghold to amplify its cloud offerings will likely be brushed aside at the FTC in my opinion, serving only to highlight that even Google is afraid of Oracle's potential.
At the nucleus of Oracle's AI strategy is its voluminous cloud database. Using its treasure trove of data, the company is unlocking major long-term opportunities in securing machine learning services. Its efforts are already showing in its eye-catching profitability and growth metrics.
Evidently, Oracle is not just surviving but thriving in the rapidly evolving tech landscape, underscoring its resilience and acumen. Its successful transition into the cloud and AI spheres cements its position as a top-tier player in the AI space over the long haul. Personally, I like Oracle's outlook and believe the stock to be fairly valued compared to its considerable long-term potential.
