Big IT businesses and start-ups are racing to harness generative AI's power and potential after ChatGPT's introduction. Nvidia and Microsoft are well-known to investors, but one of the biggest AI boom players may surprise them. Legacy database software behemoth Oracle (NYSE: ORCL).
Oracle's fiscal third-quarter results release showed that its cloud infrastructure business is growing because to rising demand for AI applications like ChatGPT. The stock rose 11% on Tuesday.
Oracle's sales jumped 7% to $13.3 billion, matching projections, while adjusted EPS rose 16% to $1.41, exceeding expectations at $1.38. The quarter's standout was cloud infrastructure, where sales rose 49% to $1.8 billion, outpacing Amazon Web Services (AWS), Google Cloud, and Microsoft Azure.
Oracle's cloud software revenue rose 14% to $3.3 billion, while its backlog, measured by remaining performance obligations, rose 29% to $80 billion, indicating a year and a half of orders to fulfill at its present revenue run rate. As it rapidly opens new data centers, demand for its AI infrastructure exceeds supply.
Oracle has collaborated with Nvidia and Microsoft on its data center buildout, and it's outgrowing competitors by offering a cheaper cloud computing alternative due to its security and clustering technology, built on Nvidia Superchips, for AI workloads.
Although Oracle Cloud Infrastructure is smaller than Azure, AWS, and Google Cloud, it has key differences. Oracle's improved security features and Oracle Alloy, launched in late 2022, allow any Oracle cloud partner to become a cloud provider and add other services.
These two attributes help the corporation market to governments and other national buyers in the sovereign cloud. On the earnings call, co-founder and Chief Technology Officer Larry Ellison explained how Alloy was attracting sovereign customers by highlighting its contract with NRI, which runs the Tokyo Stock Exchange, which he hopes will help it enter the Japanese market.
Alloy is a distinct cloud infrastructure solution, and Ellison emphasized that Azure, AWS, and Google do not compete. To emphasize, he says: "Our cloud areas are in high demand. I think we'll have more data centers and cloud regions than all the other hyperscalers."
This is a big projection, but it reflects the company's high demand and unique capacity to meet it. If true, the stock should soar.
Is Oracle stock buy? AI's disruptive potential in Oracle's cloud business shouldn't be ignored by investors, even while legacy businesses will slow cloud growth. The IT giant added $15 billion to its backlog, surpassing its quarterly sales, proving demand exceeds supply.
Oracle is gaining market share from its cloud infrastructure competitors due to its cost-effectiveness, flexibility through Alloy, security reputation, and close partnership with Nvidia. Cloud revenue and margin should increase as the firm expands. A strong demand pipeline makes Oracle an attractive AI stock in the future years.
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