The market value of Oracle Corporation (ORCL) grew by more than a quarter since our latest estimate in mid-September when we pointed out that its database software products would be sold faster due to beneficial collaborations with Amazon Web Services, Microsoft Azure and Google Cloud, as well as building more powerful supercomputers with the AI monster NVidia. These considerations turned out to be totally correct, so that the stock quite predictably continued to climb over a three-month period to approach the next intermediate target price at about $200 per share just before Oracle's quarterly results which came out this Tuesday night, on December 9. The numbers actually showed solid cloud growth yet the Wall Street crowd was not satisfied now, as both profit and revenue were generally in line with expert consensus expectations but failed to beat them. This was the reason why Oracle stock price dropped almost 9.5% after the opening bell on Tuesday, and the large force of inertia may drive it even dipper in the nearest couple of weeks, but we would consider such a temporarily negative dynamics as another good chance of buying dips to come even before the end of the calendar year.
Oracle's revenue in Q3 was up 9% on an annual basis, which means its growth accelerated from 7% in the previous quarter. It also added more than $0.75 billion for the last three months to reach $14.06 billion vs $13.3 billion in Q2. The corporate profit increased by 9.7% YoY and 5.75% QoQ. The total cloud revenue was reported at $59 billion, up 24% YoY, with the cloud infrastructure segment growing as much as 52%, which was "a much higher growth rate than any of our hyperscale cloud infrastructure competitors," according to Oracle CEO, Safra Catz. Remaining performance obligations (RPO), which is usually a gauge of "pre-booked" revenue, also climbed by 49% to $97 bln, which is nearly an equivalent for the seven quarterly performance ahead. Looking ahead, Oracle CEOs projected sales in the current quarter to grow "between 7% and 9%", or even "9% and 11% in constant currency". Total cloud sales growth is anticipated "between 23% and 25% (or 25%-27% in constant currency)". And so, the only "fault" at the moment was that Oracle has reported its equity per share of $1.47 on revenue of $14.06 billion in the previous quarter to nominally miss too greedy Wall Street expert pool's preliminary estimates for $1.48 per share on revenue of $14.12 billion, which seems to be of little matter. This means that all the positive facts about Oracle are still here, only against a technically corrective background. Our conclusion is that price goals well above $200, let's say between $200 and $225 per share, would come back on the table.
One could also take a look at some other authoritative opinions. "We acknowledge Oracle is headed toward revenue acceleration," analysts at The Bank of America wrote in their immediate post-earnings note, only adding that "with a higher mix of cloud revenue, our concern is that scale on capex [capital expenditures] could be more challenging over time given the outsized growth from database on OCI [Oracle Cloud Infrastructure] versus apps and cross-sell of other high value cloud infrastructure services seen by hyperscalers". "ORCL remains one of the few companies in our coverage seeing a product cycle, augmented by strong execution and a tangible AI narrative, further supporting growth acceleration at scale," analysts at Wolfe Research commented, while even raising their price target immediately from $195 to $205. Evercore ISI updated its forecast on Oracle by increasing its price target area to above $200 from $190, while also maintaining an Outperform rating. They considered a "slight pullback" in share prices as a result of profit-taking after an "impressive 82.85% year-to-date return" rather than a shift in the company's prospects. Thus, confidence remains high "regarding the capacity expansion planned for the calendar year of 2025". Piper Sandler raised its price target on the stock to $210 from $185 while indicating an "overweight" rating, while feeling a shift "from a multi-quarter to a multi-year growth acceleration", based on Oracle's AI infrastructure attraction for large new customers including Meta, NVidia and Canadian-rooted Cohere.
