Oracle stock price is firing on all cylinders as the company becomes one of the biggest players in the AI industry. ORCL jumped by 28% to $310, adding over $190 billion in value. This surge is in line with our recent forecast.
Oracle earnings growth
Larry Ellison’s Oracle is doing well as it continued inking more multibillion-dollar deals in the artificial intelligence industry.
Its recent results showed that it is becoming a major player in the artificial intelligence (AI) industry. This demand is primarily driven by companies seeking an alternative to other hyperscalers, such as Amazon and Microsoft.
The company is also benefiting from firms that are seeking to diversify from other cloud computing providers. A good example of this is ChatGPT’s OpenAI, which entered a multi-year deal with the company a few months ago.
The deal with OpenAI is notable because Microsoft is its anchor investor. Oracle has also entered more deals with companies like Mithril, Numenta, ModMed, and Tensor.
Oracle’s results showed that its remaining performance obligations (RPO) jumped by 359% in the last quarter to $455 billion. RPO is an important number that looks at the value of contracted revenue that has not been recognized. It is also known a company’s backlog.
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Oracle’s revenue rose by 12% to $14.9 billion. A closer look at it business shows that the cloud infrastructure segment is leading the charge, with its revenue rising by 55%.
Oracle’s SaaS business is also doing well, with its revenue rising by 28% to $7.2 billion. The other parts of its business are also thriving, with NetSuite, Fusion Cloud, and cloud applications growing by double digits. Larry Elison, the CEO said:
“We expect MultiCloud revenue to grow substantially every quarter for several years as we deliver another 37 datacenters to our three Hyperscaler partners, for a total of 71.”
Valuation risks remain
The latest Oracle earnings led to analysts upgrade as they expect it to be a major player in the AI industry, which analysts expect will continue thriving in the coming years.
In a note, a Jefferies analyst boosted his outlook for the stock from $270 to $360, a 50% upside from the current level. Keith Bachman from BMO Capital boosted the outlook for the stock to $275. More upgrades will likely come later today when the market opens.
Analysts also expect that the company will continue experiencing double-digit growth in the coming years. The average revenue estimate for the year is $66.9 billion, up by 16% from last year. It will make $80 billion next year. Based on its history, the company’s revenue will continue growing at a faster pace than expected.
However, the main risk for Oracle stock is that its stock has become highly overvalued, with the forward price-to-earnings ratio rising to over 50. To validate this multiple, the company will need to continue accelerating it revenue growth, especially in the AI infrastructure space.
Oracle stock price technical analysis
Our last Oracle stock forecast noted that it would likely surge after earnings, which happened. The real surge, however, was much higher than what we predicted.
The most likely scenario is where the company continues thriving in the coming months as investors bet on its AI solutions. However, the weekly chart shows that the stock remains above all moving averages.
This means that the ORCL stock price may retreat next year because of the situation known as mean reversion, where an asset moves back to its historical range.
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