Oracle Corp. (NYSE:ORCL) reported impressive bookings and announced new partnership deals with tech giants, bolstering Chairman Larry Ellison’s vision of positioning the software maker as a significant player in cloud computing.
Traditionally known for its database software, Oracle is now focusing on expanding its cloud infrastructure unit, which rents computing power and storage. This move aims to compete with Amazon.com Inc. (NASDAQ:AMZN), Microsoft Corp. (NASDAQ:MSFT), and Alphabet Inc.’s Google (NASDAQ:GOOG). Although this division currently generates a smaller portion of Oracle’s total sales, investors see it as a key driver of future growth.
Oracle’s shares surged 8.9% in premarket trading in New York on Wednesday, potentially reaching a record high.
In the last two quarters, “Oracle signed the largest sales contracts in our history, driven by significant demand for training AI large language models in the Oracle Cloud,” said CEO Safra Catz on Tuesday.
Catz also projected double-digit revenue growth for the fiscal year ending in May 2025, driven by robust demand for AI workloads. She expects growth to accelerate as the cloud unit’s capacity matches the rising demand.
Oracle also announced a new agreement to make its database available on Google’s cloud infrastructure. A similar deal with Microsoft, announced in late 2023, “will significantly boost our cloud database growth,” Ellison said.
OpenAI, backed by substantial funding from Microsoft, will use Oracle’s cloud infrastructure for additional capacity. Oracle’s cloud has become popular among generative AI startups, including Reka, MosaicML, and Elon Musk’s xAI, due to its high computing power capabilities.
“The world’s leading cloud and AI companies choose Oracle Cloud services and data centers,” Ellison stated after Oracle’s fiscal fourth-quarter results were released.
Oracle shares reached $135.28 in premarket trading on Wednesday, up from $123.88 at the previous close, marking an almost 18% increase this year.
Strong Momentum in AI
Kirk Materne, an analyst at Evercore ISI, noted the undeniable momentum in Oracle’s cloud infrastructure business, with the OpenAI announcement providing further validation.
Bloomberg Intelligence analyst Anurag Rana mentioned that the demand for AI workloads in Oracle’s data centers could elevate it to become the fourth-largest cloud provider.
Catz projected over 50% growth for the cloud infrastructure unit in the current fiscal year.
Oracle reported that total remaining performance obligations, a measure of future contracted sales, rose 44% to $98 billion as of May 31, exceeding the $73.9 billion average estimate.
Revenue from the cloud unit increased 42% to $2 billion, surpassing the $1.97 billion analyst projection. Total revenue grew 3.3% to $14.3 billion, slightly below the $14.6 billion estimate. Profit, excluding certain items, was $1.63 per share, just shy of the $1.65 expected by analysts.
Software Sector Challenges
Recent disappointing results from Salesforce Inc. (NYSE:CRM) and Workday Inc. (NASDAQ:WDAY) have raised concerns that tech budgets are shifting from application software to AI tools. Oracle’s cloud applications business, including Fusion apps for corporate finance, grew 10% to $3.3 billion, a slowdown from its recent growth rate and below analyst expectations.
The new partnerships are expected to boost Oracle’s cloud infrastructure business, potentially offsetting a slowdown in application software sales, Rana suggested.
Oracle’s health unit, including Cerner, has faced challenges since its $28 billion acquisition in June 2022, impacting revenue growth by 2% in fiscal 2024. However, Catz stated that Oracle will no longer separately report Cerner’s financial results as it transitions to a growth phase.
Additionally, Oracle plans to exit its advertising business, which generated $300 million in the fiscal year ending May 31.
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