“Eventually, AI will change everything. But right now, AI is fundamentally transforming Oracle and the rest of the computer industry, though not everyone fully grasps the extent of the tsunami that is approaching.” – Larry Ellison, Oracle CTO, on the company’s latest earnings call.
Oracle’s stock surged 35% on Wednesday following the release of their quarterly earnings results. Commentary from executives, such as the above, about the potential size of this AI technology wave reinforce the strong guidance the company provided. If investors had been searching for renewed strength in the ‘AI-trade,’ Oracle’s record stock move may have delivered just that.
The move in Oracle’s stock may be largely attributable to blockbuster forward looking guidance in Oracle’s Cloud division. Oracle CEO Safra Catz delivered some of the clearest forward-looking guidance I have ever heard in my career, remarking on the company’s call: “We have signed significant cloud contracts with the who’s who of AI, including OpenAI, xAI, Meta, NVIDIA, AMD and many others. We now expect Oracle Cloud Infrastructure will grow 77% to $18 billion this fiscal year, and then increase to $32 billion, $73 billion, $114 billion, and $144 billion over the following four years.” While actual results may differ materially from this guidance, those projections are astonishing and may cement Oracle as a leader in the AI Boom in the eyes of investors.
To put this in guidance in perspective, Oracle is forecasting the industry’s quickest time to grow from below $20B in annual revenue to above $100B in annual revenue. Amazon’s AWS took seven years to achieve the feat, growing from $17.5B in annual revenue in 2017 to $107.5B in annual revenue in 2024. Microsoft’s Azure looks like it will achieve this milestone in six years, growing from $16.5B in 2019 to $85.6B in 2024 (with FactSet estimates projecting above $100B in the current year). Oracle’s projected growth, from $18B in their fiscal 2026, to $114B in fiscal 2029, equates to just three years. As shown in the chart below, if this guidance is achieved, it would catapult Oracle’s Cloud division from the fourth largest industry player to a higher revenue base than AWS currently produces.
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Note: Oracle’s fiscal year ends annually in May
Oracle’s results and guidance were unexpected by investors as shares surged 35% the following day. The stock’s move, according to MarketWatch citing Dow Jones Market Data, is the single largest daily percentage gain for a company above a $500 billion market cap the day prior.1 The previous record of a +24% one-day gain was recorded by Nvidia on May 25, 2023 in the early days of the AI Revolution. With a record move in the stock, perhaps investors have woken up to the size of the ‘AI tsunami’ that Mr. Ellison sees approaching.
Oracle’s latest results may give investors renewed conviction in the size and duration of the growth of AI. With the industry’s fourth largest player projecting the fastest growth from $20B to $100B in annual revenue, it appears that AI-driven products are an accelerant to existing industries. And with a handful of leading AI customers striking multiyear commitments, Oracle may be well positioned to peer into future innovations and aid technology roadmaps. Oracle’s blockbuster quarter may redefine their role in the cloud industry.
For more content by Blake Anderson, CFA®, Associate Portfolio Manager click here
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