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Oracle's stock surges after earnings - and another catalyst is on the horizon
By Emily Bary
While Oracle's outlook for the current quarter was in line with expectations, the company could boost its fiscal 2026 outlook at Thursday's investor day
Oracle Corp. looks set for a three-peat.
The company's prior two earnings reports were well received by Wall Street, and Oracle's (ORCL) latest one is generating a double-digit positive reaction as well. Shares are up more than 11% in Tuesday morning trading as analysts cheer big cloud partnerships as well as more general momentum in the cloud.
Read: Oracle's stock soars as earnings bring three big positives
The company is on track to finish the day above a $400 billion market capitalization for the first time on record, according to Dow Jones Market Data.
In all, Bernstein's Mark Moerdler sees Oracle as a rare breed. In August, he had named the stock his top pick for the balance of 2024, and he's sticking with that call.
"We reiterate our thesis that not only is Oracle a defensive name to own amid uncertainty, but it also has robust growth drivers which will accelerate the revenue in the upcoming years," Moerdler wrote.
In the latest quarter, he was encouraged by the company's cloud momentum and its growing embrace of partnerships. Oracle announced a new partnership with Amazon.com Inc.'s (AMZN) Amazon Web Services on Monday, which adds to prior arrangements with Microsoft Corp. (MSFT) and Alphabet Inc.'s (GOOG) (GOOGL) Google.
"We will continue to observe a nice cloud revenue lift as well as growth acceleration thanks to the multi-cloud partnership," Moerdler said. The company's Oracle Cloud Infrastructure offering "continues to see demand outstripping supply, and with both [graphics processing units] and non-GPU infrastructure growth going strong, new capacities should push growth even higher."
He rates the stock at outperform with a fresh target price of $175, up from $171 before.
Melius Research's Ben Reitzes said that Oracle posted "one of the better beats in software" that he's seen recently.
"So last quarter was an RPO (remaining performance obligations) beat, but a miss on everything else and the stock went up," he wrote. "Well, it proved foretelling anyway since Oracle delivered a clean beat and raise for [the fiscal first quarter], putting some credibility behind its cloud push."
While Oracle's outlook for the fiscal second quarter was largely in line with what analysts were expecting, that could be beside the point, as Oracle has an opportunity to impress with a more important outlook at Thursday's analyst day.
"The strength after hours stems from a better tone overall, in addition to the performance of OCI and the AWS deal - and most importantly the likelihood that Oracle will be raising its [fiscal 2026] outlook materially on Thursday night at its analyst meeting," Reitzes wrote.
He has a hold rating and $155 price target on Oracle shares. While Reitzes is upbeat about Oracle's cloud transition, he notes that the stock's "valuation is quite expensive on a free-cash-flow basis considering what seems to be a multiyear period of elevated [capital expenditures]."
Guggenheim's John DiFucci wrote that Oracle's story now has more pep to it, after some years of sleepier trends.
"Oracle has always been a strong technology player, but it did see some relatively stagnant growth years during which many investors had assumed its days of excitement were over," he wrote. "Well, the excitement is back."
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There are a couple of reasons Oracle stands out in the market, according to DiFucci.
"We believe providing better performance [infrastructure-as-a-service] at a lower price is compelling in and of itself, but it becomes even more important in a world where resource-hungry [artificial-intelligence] workloads are on most vendors' and enterprises' minds - and in their plans," he wrote.
In addition, Oracle "is the only hyperscaler that can provide the entire tech stack from cloud infrastructure to cloud platform to enterprise-class cloud applications," he said in his latest note.
DiFucci boosted his price target on Oracle's stock to $185 from $175 after the report. He rates the stock a buy and dubs it a "best idea."
-Emily Bary
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09-10-24 0951ET
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