Oracle's stock surged after the company issued an upbeat revenue forecast, raising its fiscal 2027 target to $90 billion. A key indicator of future revenue, its remaining performance obligations, soared 325% year-over-year, signaling strong demand for its AI infrastructure investments.
The company is making a massive bet on AI by building data centers for partners like OpenAI while using AI tools internally to develop software more efficiently. Analysts describe Oracle as a direct, though leveraged and higher-risk, play on the AI infrastructure buildout.
Executive Chairman Larry Ellison addressed concerns that AI tools threaten its software business, stating Oracle is embracing them to create new SaaS products. However, some analysts note persistent investor worries about execution risks and financial pressures within its cloud division.
Oracle shares surged about 10% before the bell on Wednesday after the software giant's upbeat revenue forecast calmed worries over faster returns from its hefty spending on artificial intelligence infrastructure.
The company has poured billions of dollars toward building data centers for partners like OpenAI and Meta, while trimming staff and using smaller, AI-assisted teams and tools âto develop software â for â its traditional customer base and businesses.
Oracle raised its revenue forecast for fiscal 2027 to $90 billion, above âanalysts' estimates of $86.6 billion.
Remaining performance obligations (RPO), a key indicator of future contracted revenue, jumped 325% from a year earlier to $553 billion in the third quarter, compared with $523 billion in the prior quarter and beating market estimates.
Oracle looks "like one of the more direct âways for investors to tap into the ongoing buildout â of AI âinfrastructure. It's a higher-risk, higher-reward stock, and effectively a leveraged âplay on âthe AI theme, which means it's the first in line â to take some punishment should the AI story lose steam," âsaid Matt Britzman, senior equity analyst at Hargreaves Lansdown.
For âits current fiscal fourth quarter, the company projected adjusted profit between $1.96 and $2.00, above analysts' estimates of $1.94.
SaaS debate continues
On the conference call, cofounder and executive chairman Larry Ellison said rising investor concern that AI coding tools would weaken demand for business software should not apply to Oracle. The company, he said, is âembracing those tools by using small teams of engineers to create new software-as-a-service (SaaS) products.
Worries that fast-advancing AI tools could upend software and âservices had pummeled âstocks in the â sector last month. The stock is down 23% so far this year.
While these (Ellison) are very credible comments, it remains to be seen if Oracle sees an impact on âseats and pricing shifts that could occur, said Melius Research.
"We don't think investors are really concerned about the SaaS-pocalypse for Oracle, as much as the risks associated with execution, margins and financing within Oracle Cloud Infrastructure (OCI)."
Oracle's stock is trading at over 19.17 times its 12-month forward earnings estimates, compared with Microsoft's 22.05.
The company has poured billions of dollars toward building data centers for partners like OpenAI and Meta, while trimming staff and using smaller, AI-assisted teams and tools âto develop software â for â its traditional customer base and businesses.
Oracle raised its revenue forecast for fiscal 2027 to $90 billion, above âanalysts' estimates of $86.6 billion.
Remaining performance obligations (RPO), a key indicator of future contracted revenue, jumped 325% from a year earlier to $553 billion in the third quarter, compared with $523 billion in the prior quarter and beating market estimates.
Oracle looks "like one of the more direct âways for investors to tap into the ongoing buildout â of AI âinfrastructure. It's a higher-risk, higher-reward stock, and effectively a leveraged âplay on âthe AI theme, which means it's the first in line â to take some punishment should the AI story lose steam," âsaid Matt Britzman, senior equity analyst at Hargreaves Lansdown.
For âits current fiscal fourth quarter, the company projected adjusted profit between $1.96 and $2.00, above analysts' estimates of $1.94.
SaaS debate continues
On the conference call, cofounder and executive chairman Larry Ellison said rising investor concern that AI coding tools would weaken demand for business software should not apply to Oracle. The company, he said, is âembracing those tools by using small teams of engineers to create new software-as-a-service (SaaS) products.
Worries that fast-advancing AI tools could upend software and âservices had pummeled âstocks in the â sector last month. The stock is down 23% so far this year.
While these (Ellison) are very credible comments, it remains to be seen if Oracle sees an impact on âseats and pricing shifts that could occur, said Melius Research.
"We don't think investors are really concerned about the SaaS-pocalypse for Oracle, as much as the risks associated with execution, margins and financing within Oracle Cloud Infrastructure (OCI)."
Oracle's stock is trading at over 19.17 times its 12-month forward earnings estimates, compared with Microsoft's 22.05.
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