When
Oracle
posts financial results after the close of trading on Monday, the focus will be on how the cloud business is doing, the future impact from the generative AI trend, and whether it is seeing an impact from tougher macroeconomic conditions. Optimism is high.
Oracle
(ticker: ORCL) shares have been flying in recent weeks, amid a growing view the company’s cloud business is well positioned to benefit from the growing AI trend. The stock last week set an all-time high, briefly inching past the $110 level, reaching a market valuation of close to $300 billion. Oracle shares have rallied more than 30% since March.
A few days ago, in a note previewing the quarter, Piper Sandler analyst Brent Bracelin repeated his Overweight rating on the stock, while pushing up his price target to $130, from $104.
His view is that after a decade-long era of low growth, we are at the beginning of a new era for the database and enterprise application company. He thinks Oracle will report 7% growth for the May 2023 fiscal year, adjusted for currency—with 9% to 11% growth over the net two to three years, along with double-digit EPS growth.
What has changed, mostly, is Oracle’s aggressive push into the cloud, first with its own software and then with the launch of Oracle Cloud, as Barron’s noted in a February 2021 cover story and reiterated in a story last October that included a rare interview with CEO Safra Catz. Since then, the stock has rallied 70%.
“Customers who compare us with the other clouds are often stunned,” Catz said at the time. “Why do all these auto companies—Toyota,
Nissan,
Mazda
—why are they doing all their high-performance work in the Oracle Cloud? Is it our charming bedside manner? Probably not. Is it because it is faster, cheaper, and more secure? Ding, ding, ding!”
Bracelin notes he is seeing job postings for engineers with experience working with the Oracle Cloud from both enterprise customers such as
ABM Industries
(ABM),
Block
(SQ), Cox Enterprises, and Subaru, as well as software advisors at firms such as
Accenture
(ACN),
Infosys
(INFY), and
Cap Gemini.
Oracle also is taking advantage of strong customer relationships, a cutting edge cloud-platform, and a tight relationship with
Nvidia
(NVDA), which supplies chips to almost every cloud vendor, to become a surprisingly compelling AI play.
TD Cowen analyst Derrick Wood also recently repeated his Outperform rating, while lifting his target price to $117, from $100. Wood notes his channel checks find strong levels of demand for Oracle Cloud capacity, with more mixed recent demand for software-as-a-service applications, amid some buyer caution. But he says the cloud is where the focus is, “especially in front of a new AI computing cycle.”
Wood thinks AI is going to be a bigger driver of cloud computing consumption from here—which he thinks could mean upside to his forecast of 50% cloud growth in FY 2024.
For the quarter, Street consensus estimates call for May quarter revenue of $13.7 billion, up 16%, with adjusted profits of $1.57 a share.
Oracle’s guidance called for revenue growth of 17% to 19% on a constant currency basis, including the company’s recent Cerner acquisition, with a two percentage point drag from currency. The company said total cloud growth, including Cerner, would be 51% to 53% in constant currency, or 49% to 51% as reported. Oracle also projected total FY Q4 cloud growth ex-Cerner would be above 30% in constant currency.
Oracle’s guidance calls for adjusted May quarter EPS of between $1.59 and $1.63 a share in constant currency, or $1.56 to $1.60 as reported.
For the August quarter, Street estimates call for revenue of $12.3 billion, and adjusted profits of $1.16 a share.
Write to Eric J. Savitz at eric.savitz@barrons.com
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