Oracle Corp. on Track for Best Year in Over Two Decades
Oracle Corp. is poised to have its best year in over two decades, thanks to its cloud business, which was once struggling but is now being taken seriously by clients and investors.
The software giant has long sought to carve out a niche in the lucrative market for cloud-based computing power and storage, dominated by larger rivals like Amazon Web Services (AWS) of Amazon.com Inc. and Microsoft Corp.
Technically demanding workloads related to artificial intelligence (AI) model training, as well as high-profile clients like Uber Technologies Inc. and TikTok of ByteDance Ltd., have driven rapid expansion of Oracle's cloud infrastructure business over the past year. Wall Street analysts predict that this unit will generate over $10 billion in annual sales for the fiscal year ending in May 2025.
Oracle, which is set to release its second-quarter fiscal results this Monday, has seen its stock surge 82% in 2024. If this trend continues, it would represent the company's largest annual rally since 1999.
It wasn't until 2022 that clients and investors began to take Oracle's cloud offering seriously, according to John DiFucci, an analyst at Guggenheim Securities. He notes that Oracle's cost and performance advantages are now being recognized by clients and investors.
"Oracle may not be recognized as a cloud pioneer, but its constant development efforts, extensive presence in the computing domain, and significant share of IT spending give it a unique position of influence with client accounts," wrote Derrick Wood, an analyst at TD Cowen, in a company analysis.
The total infrastructure market grew 23% to reach $84 billion in the third quarter, marking a fourth consecutive period of annual growth, according to John Dinsdale, chief analyst at Synergy Research Group. While Synergy estimates that Oracle represents only a single-digit share of these expenditures, the market is expected to continue growing due to increasing demand for AI-related services, he adds.
A significant portion of this growth is attributed to an almost insatiable demand for computing power to handle AI-related workloads. At least in the short term, Oracle is expected to continue capturing a "disproportionate" share of this market from startups like Cohere Inc. and xAI of Elon Musk, wrote Rishi Jaluria, an analyst at RBC Capital Markets.
