TLDR
- Oracle’s stock (ORCL) is up 2.33%, with Jim Cramer suggesting they will show “incredible strength”
- ORCL is heavily involved in data centers, which Cramer called “the single biggest investment story for months”
- Oracle’s OCI revenues increased 52% year over year with GPU consumption up 336% in the last quarter
- The company trades at an elevated EV/EBITDA multiple of 21.89x, higher than the industry average of 16.41x
- Despite strong cloud growth, Oracle faces challenges including high capital expenditures and competitive pressure from larger cloud providers
Oracle Corporation (NYSE:ORCL) shares continued their upward trend today, rising 2.33% as the company strengthens its position in the data center and cloud computing markets. The tech giant has shown remarkable performance in recent months, outpacing broader market indices.
Jim Cramer, host of CNBC’s Mad Money, recently highlighted Oracle as a key player in what he describes as “the single biggest investment story for months on end” – the data center boom. During Tuesday’s episode, Cramer emphasized the growing significance of data centers in the technology sector.
“I think they’ll show incredible strength,” Cramer stated about Oracle before their December 2024 earnings report. His optimism stems from what he sees as “practically an endless demand for data centers.”
The company’s cloud transformation has indeed shown impressive progress. Oracle expects cloud revenues to reach $25 billion this fiscal year, according to CEO Safra Catz during the recent second-quarter earnings call.
Oracle Cloud Infrastructure (OCI) has been a standout performer with revenues increasing 52% year over year. This growth reflects Oracle’s strategic pivot toward cloud services and AI infrastructure.
Perhaps most striking is the 336% increase in GPU consumption reported in the last quarter. This surge indicates strong AI-related demand as companies rush to build out their artificial intelligence capabilities.
Oracle has made substantial investments in AI infrastructure. The company delivered what it calls “the world’s largest and fastest AI supercomputer, scaling up to 65,000 NVIDIA H200 GPUs,” according to Chairman Larry Ellison.
Despite these positive developments, some analysts express concerns about Oracle’s current valuation. The company trades at an elevated EV/EBITDA multiple of 21.89x, which is significantly higher than the Zacks Computer-Software industry average of 16.41x.
This premium valuation suggests investors have already priced in substantial future growth. Such high expectations create a situation where even slight underperformance could trigger downside movement in the stock price.
Oracle has outperformed the broader market with a 25.8% gain over the past six months. This compares favorably to the Zacks Computer and Technology sector’s 4.9% and the S&P 500’s 6.4% gain during the same period.
While Oracle’s remaining performance obligation (RPO) grew 50% to $97.3 billion, showing strong future revenue visibility, free cash flow trends raise some concerns. The company’s trailing 12-month free cash flow was $9.5 billion, with a 6% decline in the most recent quarter despite operating cash flow increasing 19%.
This divergence is primarily due to higher capital expenditures, which reached $4 billion in the second quarter alone. As Oracle continues to invest heavily in data center expansion, free cash flow may remain under pressure.
Capital expenditures are expected to double in fiscal 2025 compared to 2024, as stated by CEO Catz during the earnings call. This could impact profit margin expansion in the near term.
Oracle faces competitive pressures
Oracle faces competitive pressures in the cloud infrastructure space. Despite OCI’s impressive growth, Oracle remains a smaller player compared to hyperscaler giants like Amazon Web Services, Microsoft Azure, and Google Cloud.
The company’s multi-cloud partnerships with these competitors highlight its dependent position in the broader cloud ecosystem. This relationship dynamic could impact Oracle’s long-term growth potential in the infrastructure segment.
The consensus estimate for Oracle’s fiscal 2025 revenues is $57.65 billion, indicating year-over-year growth of 8.85%. For earnings, analysts expect $6.22 per share, representing growth of 11.87% compared to the previous year.
Oracle currently carries a Zacks Rank #3 (Hold), reflecting balanced risk and reward potential for investors considering the stock at current levels.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
