💻 New AI Bet – Oracle

and some say it's better than Nvidia

Future Download

A.I., Crypto & Tech Stocks

Why Oracle Needs to be Your Next AI Bet

Nvidia has established itself as a key player in the artificial intelligence (AI) sector, primarily through its powerful graphics processing units (GPUs), which are essential for training and deploying AI models. However, recent market sentiment has turned negative as concerns about its growth trajectory have emerged. Nvidia's stock has been on a decline and is down -7.67% in the last 30 days.

Despite an impressive quarterly revenue surge of 122% year-over-year, reaching $30 billion, and a significant 152% rise in adjusted earnings to $0.68 per share, investor confidence has waned.

The management's projection of an 80% year-over-year revenue growth for the current quarter has left investors apprehensive. Although Nvidia remains a leader in the AI chip market, its high valuation appears to be a contributing factor to the recent decline in stock performance.

Currently trading at $169.66, Oracle has taken a beating as well. It is down -11.06% in the last 30 days and up 63% YTD, lower than Nvidia's 179%.

Oracle's AI-Driven Revenue Growth

Oracle has recently captured attention in the market, driven by AI's positive impact on its cloud business. The announcement of its fiscal 2025 first-quarter results on September 9 send shares up over 11%. The company's total revenue grew by 8% year-over-year, totaling $13.3 billion, surpassing the $13.2 billion consensus estimate. Additionally, adjusted earnings increased by 17% to $1.39 per share, exceeding Wall Street’s expectations of $1.33.

A key metric that has drawn attention is Oracle's remaining performance obligations (RPO), which surged 53% year-over-year to a record $99 billion. This significant increase indicates a robust revenue pipeline that positions the company for long-term growth.

Cloud Infrastructure Demand

Oracle’s cloud revenue specifically saw a remarkable 22% year-over-year increase, amounting to $5.6 billion, with cloud infrastructure revenue soaring by 46% to $2.2 billion. The company signed 42 additional cloud GPU contracts, valued at $3 billion, in the last quarter.

The demand for Oracle’s cloud infrastructure is currently outstripping supply, prompting plans to double capital expenditure in fiscal 2025 compared to the previous year.

This strategic investment reflects the escalating need for cloud resources to support AI development, with Goldman Sachs predicting a 22% annual growth rate for cloud services through 2030, potentially generating up to $1 trillion in revenue. Generative AI alone could account for $200 billion to $300 billion of this spending, emphasizing the lucrative opportunities in this sector.

Promising Future Prospects

With a strong contract backlog, Oracle anticipates revenue growth to continue throughout fiscal 2025, projecting an increase of 8% to 10% for its fiscal second quarter. The company is optimistic about achieving double-digit growth in total cloud-infrastructure revenue for the full year.

Analysts also foresee sustained double-digit growth in the coming years, driven by the expanding cloud computing market fueled by AI adoption. This anticipated growth could result in a favorable market response, making Oracle an attractive investment opportunity.

Upcoming Report

Oracle's Q2 fiscal 2025 results are expected to reflect strong growth driven by cloud adoption and AI integration. The shift toward hybrid work models has likely fueled demand for Oracle Cloud Infrastructure (OCI) and cloud-based applications.

Strategic partnerships with Microsoft, Amazon, and Google have been key growth drivers, with launches like Oracle Database@Azure in Australia, Oracle Database@Google Cloud in the U.S. and Europe, and Oracle Database@AWS expanding market reach. These collaborations allow customers to access Oracle's database services across major cloud platforms.

In fintech, Oracle strengthened its position with the Financial Crime and Compliance Management Monitor, offering advanced risk management tools. It also launched AI innovations, including OCI Generative AI Agents and GenDev for enterprise application development. Cloud-based software adoption remains robust, with NetSuite ERP and Fusion ERP enhanced by AI updates for better financial reporting and decision-making.

Industry-specific successes include Hyatt's adoption of Oracle OPERA Cloud for its hotels and Alfred Health implementing Oracle's Oncology EHR solutions. Additionally, AT&T's integration of IoT connectivity into Oracle's Enterprise Communications Platform highlights innovation in emerging tech.

Oracle's technical capabilities remain strong, as seen in Java 23's updates and the high-performance Gen 2 Cloud architecture. The company’s investments in cloud infrastructure and AI services, alongside a multi-cloud strategy, position it well for ongoing growth in enterprise cloud adoption and digital transformation.

Investment Considerations

Currently, Oracle's stock is trading at a compelling 25 times forward earnings, which is lower than the Nasdaq-100 index's earnings multiple of 31. Given its strong performance and the potential for continued growth, Oracle represents a solid investment choice, especially following its impressive gain this year. It only trails Nvidia in the field and is ahead of other big names like Intel, Meta, and Cisco.

The company holds a strong position in database management and ERP software, but competition in the cloud space is intensifying. AWS, Google Cloud, and Microsoft Azure collectively captured 67% of the global cloud services market in Q2 2024, according to IT research firm Synergy.

But, we cannot forget that Oracle is trading at a forward price-to-sales ratio of 8.4x, slightly higher than the Zacks Computer-Software industry average of 8.21x, indicating a relatively stretched valuation.

Oracle’s cloud growth strategy, robust financial outlook, and technological innovation present a strong case for potential investors. Its strategic multi-cloud partnerships, emphasis on AI and machine learning, and targeted expansion into key industries highlight a progressive approach, making the stock one to watch ahead of its Q2 fiscal 2025 results.

Just for knowledge: There is a difference between price-to-sales (P/S) and price-to-earnings (P/E):

  1. Price-to-Sales (P/S) Ratio:

    It is used to compare a company's stock price to its revenue per share and can help evaluate companies that may not yet be profitable, as it focuses on sales rather than earnings. This is commonly used in growth industries or for early-stage companies.

  2. Price-to-Earnings (P/E) Ratio:

    It measures how much investors are willing to pay for each dollar of net income. This is a highly valuable indicator that shows growth expectation. A higher P/E can indicate high growth expectations, while a lower P/E might suggest undervaluation or challenges.

The P/S ratio focuses on top-line revenue, while the P/E ratio focuses on bottom-line profitability. They are used for different purposes depending on the stage and financial health of a company.

Here’s an old but interesting video on the topic:

Reminder: We are not asking you to sell Nvidia, but we think diversifying and investing is this fast growing AI stock can prove to be beneficial.

Resources

👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.