Oracle shares hit record high on AI, cloud growth

Emerging force: The Oracle logo is seen at its office in Virginia. The database software company’s shares have risen 33% so far this year. — Reuters

NEW YORK: Oracle Corp is reporting better-than-expected bookings and announced partnership deals with tech rivals, giving a boost to chairman Larry Ellison’s effort to redefine the software maker as a major competitor in the business of cloud computing. The shares hit a record high.

The company, known for its database software, is focused on expanding its cloud infrastructure unit – which rents computing power and storage – to compete with Inc, Microsoft Corp and Alphabet Inc’s Google.

While this division produces a small portion of total sales, investors view it as Oracle’s major future growth bet.

Oracle shares gained 13% to close at a record US$140.38 Wednesday in New York, the biggest single-day increase since December 2021. The stock has jumped 33% this year.

In the past two quarters, “Oracle signed the largest sales contracts in our history – driven by enormous demand for training artificial intelligence (AI) large language models in the Oracle Cloud,” chief executive officer Safra Catz said Tuesday in a statement.

Revenue growth will increase by double digits in the current fiscal year ending in May 2025, fuelled by strong demand for AI workloads, Catz said.

Growth should accelerate through the year as the cloud unit’s “capacity begins to catch up with demand”, she added.

Oracle also announced a new agreement to make its namesake database available on Google’s cloud infrastructure.

A similar deal with Microsoft, which was announced in late 2023, “will turbocharge our cloud database growth”, Ellison said in a separate statement.

OpenAI, which has received billions in funding from Microsoft, will use Austin-based Oracle’s cloud infrastructure for “additional capacity”, the companies said in a statement.

Oracle’s cloud has developed a reputation for success with generative AI startups – the company touted customers including including Reka, MosaicML, and Elon Musk’s xAI. AI technology needs enormous computing power to work.

“The world’s largest cloud companies and the world’s most successful and accomplished AI companies choose to use Oracle Cloud services and data centres,” Ellison said on a conference call after the company released its financial fourth-quarter results.

The momentum in Oracle’s cloud infrastructure business “is undeniable and the OpenAI announcement creates another positive data point in AI”, wrote Kirk Materne, an analyst at Evercore ISI.

Bloomberg Intelligence analyst Anurag Rana said the demand to run AI workloads in Oracle’s cloud computing data centres “could catapult it to become the fourth-largest cloud provider”.

Catz said on the conference call that the cloud infrastructure unit will grow more than 50% in the current financial year.

Oracle said that total remaining performance obligations, a measure of future contracted sales, increased 44% to US$98bil in the period ended May 31, far surpassing the average estimate of US$73.9bil.

Revenue from the cloud unit that rents computing power and storage increased 42% to US$2bil, the company said in a statement. Analysts, on average, projected US$1.97bil, according to data compiled by Bloomberg.

Total revenue gained 3.3% to US$14.3bil, compared with the US$14.6bil average estimate. Profit, excluding some items, was US$1.63 per share. Analysts expected US$1.65.

Underwhelming results from peers like Salesforce Inc and Workday Inc in recent weeks have fuelled investor anxiety that technology budgets are being funnelled away from application software to AI tools.

Sales in Oracle’s cloud applications business, including its Fusion apps for corporate finance, increased 10% to US$3.3bil.

That’s a slowdown from the roughly 14% growth the unit has seen over recent quarters and below analysts’ estimates.

The new partnerships are likely to accelerate growth in Oracle’s cloud infrastructure business, which could help offset a slowdown in applications, Rana wrote in a note after the earnings were released. — Bloomberg

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