Oracle shares pop 15% to record high on earnings beat, cloud optimism

Oracle Corporation shares surged by 15% on Thursday, marking their highest closing price ever and achieving their most significant single-day gain since 2021. This remarkable jump was propelled by the company's impressive earnings report and optimistic outlook, particularly driven by substantial growth in cloud services. For the fiscal fourth quarter, Oracle reported revenue of $15.9 billion, an 11% increase year-over-year, surpassing analysts' expectations of $15.59 billion, as per LSEG data. The company also announced adjusted earnings per share of $1.70, exceeding the anticipated $1.64. Piper Sandler analysts highlighted that Oracle has entered a new era of enterprise popularity reminiscent of the late 1990s Internet boom, prompting several firms to raise their price targets for the stock. One notable upgrade increased the forecast from $130 to $190. Oracle is making significant strides in the competitive cloud infrastructure landscape, positioning itself against giants like Amazon, Google, and Microsoft. While its $3 billion cloud revenue for the May quarter pales in comparison to Google's over $12 billion, Oracle is experiencing faster growth. The company is also looking to expand sales of its database across multiple cloud platforms. During a recent analyst call, Oracle Chairman Larry Ellison remarked on the impressive growth in multi-cloud capabilities, attributing this to the integration of advanced AI features in their database offerings. He noted the flexibility now available for clients to utilize the database on various cloud platforms. Remaining performance obligations (RPO), a key indicator of future revenue, reached $138 billion, reflecting a 41% increase from the previous year. CEO Safra Catz projected that RPO could more than double by the end of the 2026 fiscal year. She also forecasted revenue for the new fiscal year to exceed $67 billion, higher than the $65.18 billion consensus estimate from LSEG. The company is yet to factor in potential gains from OpenAI's Stargate project, which aims for $500 billion in investments over the next four years. Ellison suggested that if Stargate lives up to its promises, the growth projections for RPO might be understated. Looking ahead to fiscal 2029, Catz indicated that revenues are expected to surpass the previously set target of $104 billion. However, the company faces challenges in meeting the high demand for cloud services, with Catz acknowledging that demand vastly exceeds supply. Despite this, she reassured that sourcing Nvidia graphics processing units has not been an issue. RBC analysts, while recommending that investors hold onto the stock, raised their price target from $145 to $195. They cautioned that, given ongoing capacity constraints, a significant acceleration in growth may be challenging in the near future.