Oracle promotes the progress of artificial intelligence: shares rise 15%

That of the Oracle NYSE: ORCL The rollout of second-generation cloud services has been slow, but the focus on quality over quantity is paying off. The company’s third-quarter results and outlook confirm that the second wave of AI is here. The wave where all those chips were NVIDIA NASDAQ:NVDA AND Advanced microdevices NASDAQ:AMD products are integrated into next-generation cloud infrastructure, paving the way for widespread adoption of the technology. The main point of the report is that demand for AI infrastructure exceeds supply, Oracle is increasing supply as quickly as possible, and business momentum is growing, increasing shareholder value.

“We expect to continue to receive large contracts that reserve cloud infrastructure capacity because demand for our Gen2 AI infrastructure substantially exceeds supply, even as we are opening new cloud data centers and expanding existing ones very, very rapidly,” he said CEO Safra Catz.

Oracle speaks: the market likes what it hears

Oracle’s third-quarter results were mixed with revenue as expected, but that’s the weakest detail in the report. The $13.28 billion is as expected, but up 7.% year over year due to strength in the cloud business, the company’s growth segment. Total cloud grew 25%, led by a 49% increase in IaaS, or Infrastructure-as-a-Service. SaaS revenue increased slightly by 14%, with Fusion ERP up 18% and NetSuite Cloud up 21%.

Among the relationship’s catalysts is RPO or remaining performance obligation. RPO is a measure of business contracted but not yet delivered; increased 29% in new and large customer acquisition. RPO reached a record $80 billion; nearly half is expected to be recognized as revenue over the next four quarters. This is a huge increase in new infrastructure capabilities and an improvement in the revenue base.

Margin news is another catalyst for the market. The company expanded its operating margin on cost control, revenue leverage and mix, leaving adjusted operating profit up 12%, net income up 18% and adjusted earnings up 16 %. Adjusted earnings are better than expected by $0.03, and margin strength is likely in Q4 and calendar 2024.

Oracle provides no guidance but shows momentum that will continue for at least the next few quarters. Executives expect to see the Gen2 Cloud business sustain hypergrowth in the “foreseeable future” and may downplay the business. Among the drivers are new services for healthcare companies that include AI-powered charts and documents with voice assistance. A partnership with NVIDIA is also in play. Details are unknown and will be announced in mid-March, but likely include a collaborative effort to build new AI infrastructure and services.

Analysts expect higher prices for Oracle shares

Analyst response to Oracle’s third-quarter results is positive. Marketbeat.com tracks at least a dozen reviews that include several upgrades to Buy or Outperform equivalents and numerous price target increases. The price target increases have the stock trading well above the pre-release consensus, with the potential for at least another 20% upside, including the post-release pop.

The new high target is $165, or about 30% of the upside, and higher targets are likely later in the year. Details cited in the reports include booking strength, RPO, cloud and artificial intelligence. Analysts Dan Ives at Wedbush reiterated that Oracle is at the heart of the company’s AI investment thesis.

Technical Outlook: Oracle hits new highs, rally on!

Price action in Oracle has lagged analyst consensus, but is quickly catching up. The post-release pop sent the market up 13% to 15% to align with the pre-release consensus, and could continue to rise once the session opens due to analyst updates.

Based on the technical projection alone, assuming the market maintains support at new highs, this stock could rise as much as 30% over the next two quarters. Since that projection is in line with post-release analyst action, it is likely to be achieved sooner rather than later. Risk is profit taking. Profit taking could limit earnings at the current level. In that scenario, the stock could retreat to the $120 level or lower before continuing to set new highs.

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