Artificial intelligence (AI) has proven to be a great catalyst for this Oracle (NYSE: ORCL) in 2024, with shares of the cloud infrastructure and database software provider up 74% so far this year, at the time of writing.
This impressive rise in Oracle’s stock is not surprising as the company’s business has seen a major boost due to growing demand for its cloud infrastructure that is rented by companies to train and deploy AI models. The good part is that robust demand for cloud AI services has enabled Oracle to build an impressive revenue pipeline, which is expected to drive a nice acceleration in the company’s growth.
More importantly, the market for cloud-based AI services serving Oracle’s cloud infrastructure is currently in the early stages of growth. That’s exactly why this AI stock could maintain its impressive growth momentum into 2025 and beyond.
Here’s a look at the reasons why buying Oracle stock seems like a no-brainer.
Oracle’s AI-driven growth potential points to a bright future
During Oracle’s first quarter fiscal 2025 results (ended August 31) in September this year, Oracle reported an 8% year-over-year increase in revenue to $13.3 billion. More importantly, the company expects double-digit growth in fiscal 2025, driven by solid cloud infrastructure revenue growth.
Oracle’s full-year guidance indicates that revenue growth will accelerate from the 6% improvement revenue saw in fiscal 2024 to $53 billion. The company’s revenue should ideally reach $58.3 billion this year. The good thing is that analysts expect Oracle’s revenue growth to accelerate in the coming financial years.
ORCL revenue estimates for current fiscal year data based on YCharts
It should come as no surprise that the company is indeed delivering what Wall Street is looking for. That’s because the company started the first quarter of fiscal 2025 with a 53% increase in remaining performance obligations (RPO) to $99 billion. By comparison, Oracle’s RPO rose 44% in the fourth quarter of fiscal 2024.
The acceleration in this metric bodes well for Oracle, as RPO refers to the future value of a company’s unfulfilled contracts. That figure could have been higher, but Oracle says demand for cloud infrastructure services exceeds supply. Not surprisingly, the company wants to bring more capacity online by leveraging Nvidia‘s graphics processing units (GPUs) to build massive data centers to help customers train large AI models.
Oracle’s data centers currently serve 85 regions worldwide, with an additional 77 under construction or in the planning stages. This aggressive expansion should enable Oracle to meet the rapidly growing demand for its cloud infrastructure. It’s worth noting that cloud-related RPO increased by more than 80% last quarter and represents three-quarters of total RPO. There is more room for growth in this area given the growing demand for cloud-based AI services.
Oracle says it witnessed a 162% year-over-year increase in cloud-native AI customers in the previous quarter. The total contract value of its AI-specific deals in the first fiscal year was $3 billion. Goldman Sachs projects that the cloud infrastructure-as-a-service (IaaS) market that Oracle serves could be worth as much as $580 billion by 2030, accounting for 29% of the total cloud spending of $2 trillion by the end of the decade .
The investment bank adds that generative AI-based cloud spending could be between $200 billion and $300 billion of the total market. Oracle is well on its way to making the most of this multibillion-dollar opportunity, with cloud IaaS revenue rising 46% year-over-year to $2.2 billion in the first quarter. Meanwhile, the fact that it won $3 billion in AI-related cloud contracts in the same quarter suggests that this company is poised for stronger growth in the future.
So it wasn’t surprising that Oracle management expected faster cloud infrastructure revenue growth this fiscal year compared to the previous period. More importantly, the long-term opportunities in this market are why Oracle has increased its long-term growth forecasts, which could lead to more share price appreciation in the long run.
The stock’s valuation and long-term growth potential make it worth buying
Oracle expects to generate revenues of $66 billion in fiscal 2026, which would be a 13% increase over its projection for fiscal 2025. Additionally, the company expects at least 10% growth in earnings per share next year. However, in fiscal year 2029, Oracle expects its revenue to reach at least $104 billion. That would translate into a three-year compound annual growth rate of more than 16% between the 2026 budget year and the 2029 budget year.
Considering that Oracle now trades at 29 times forward earnings, compared to the tech-heavy company Nasdaq-100 With a forward earnings multiple of 31.3, it is not too late for investors to buy the index. The sharp jump in Oracle’s revenue growth, along with the faster rise in its bottom line, points to improved long-term earnings power, which could help this cloud stock maintain its healthy momentum in the stock market for a long time to come.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Nvidia: If you had invested $1,000 when we doubled in 2009, you would have $378,269!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $43,369!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $476,653!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 18, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Goldman Sachs Group, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
