Oracle’s (ORCL) rapid cloud growth, impressive financial results, and exceptionally low valuation make the shares attractive to both growth and value investors.
Additionally, Oracle’s multi-billionaire chairman recently showed confidence in the firm by canceling a planned, large-scale distribution of a portion of his Oracle stock. In contrast, two stock analysts issued bullish notes on Oracle after its fiscal first-quarter results, which it delivered on September 10. Also encouragingly, the firm landed a very large contract with the Pentagon in July.
The Cloud Business and the Company As a Whole Are Expanding Very Quickly
Boosted by the ongoing AI Revolution, the company’s overall cloud revenue in fiscal Q1 jumped 62% versus the same period a year earlier to $11.6 billion. In comparison, its cloud-infrastructure sales soared 121% year over year (YOY) to $7.4 billion.
Meanwhile, the firm’s total revenue climbed 30% year-over-year to $19.3 billion, and its Remaining Performance Obligation, similar to backlog, advanced by $209 billion versus the same period a year earlier to $664 billion.
Turning to profitability, Oracle’s earnings per share, excluding certain items, advanced 30% YOY to $1.92.
Also indicating how quickly Oracle’s AI infrastructure business is growing, the company’s “embedded AI capabilities” were accessed over 150 million times in Q4, up 42% from the previous quarter.
A Very Low Valuation and a Big Show of Confidence
Oracle stock is trading at a forward price-to-earnings ratio of 18.6 times. In light of its strong growth and high leverage to the AI boom, that’s an extremely low valuation.
On September 12, Oracle announced that its co-founder and executive chairman, Larry Ellison, had decided not to go through with his scheduled sale of 50 million shares of Oracle stock, worth about $7.5 billion as of that day.
The move suggests that Ellison believes that the shares are meaningfully undervalued. Since Ellison is presumably very familiar with Oracle’s outlook and can get excellent financial advice from many sources, the move suggests the shares are indeed quite cheap.
Two Bullish Analysts and a Big Pentagon Deal
Bank of America analyst Tal Liani is bullish on Oracle, citing the tech giant’s huge backlog and its ability to benefit from strong AI infrastructure demand. After the firm’s Q1 results, the analyst maintained a $240 price target and a Buy rating on the name.
Also upbeat on Oracle stock was Nicholas Mugalli, the CEO and Principal of World Trade Securities, calling the year-over-year increase in the company’s backlog “staggering.” Mugalli said the surge “proves that the demand for Oracle’s cloud infrastructure offerings” is compounding exponentially faster than that of the cloud-infrastructure units of Amazon (AMZN) or Microsoft (MSFT).
In July, Larry Ellison’s firm secured a contract from the War Department worth at least $3.31 billion and could bring in nearly $7 billion for Oracle if the agency decides to use the company’s offerings for ten years. Under the deal, the tech giant will provide software, consulting, and “customer success services” to the Pentagon.
This article is intended to be informational only; it is not financial advice.
