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Despite a rocky ride over the past few months, 2023 has been the year of redemption for stocks in the technology sector. After falling under the weight of rapidly rising interest rates in 2022, the frenzy around artificial intelligence (AI) propelled the tech sector to historic first-half returns. Now, the tech-focused Nasdaq-100 Index ($IUXX) boasts a YTD gain of 36%, compared to returns of 12% for the S&P 500 Index ($SPX).
Along with AI, cloud computing has also emerged as a key growth area for tech companies to compete. In fact, the cloud computing market is expected to top $1.6 trillion by 2030, indicating a CAGR north of 17%.
With giants like Amazon (AMZN), Google (GOOGL), and Microsoft (MSFT) all dominating headlines during this next phase of the tech revolution, there's another mega-cap tech company worth watching for its future growth prospects and upside potential.
About Oracle
Founded in 1977 by Larry Ellison, Bob Miner, and Ed Oates, Oracle (ORCL) is a software company based out of Austin, Texas. Oracle specializes in developing and marketing computer hardware and software products, including database software, cloud computing, enterprise software, customer relationship management (CRM) software, and human capital management (HCM) software.
With a market cap of $283.2 billion, Oracle is the second-largest software company in the world by revenue, behind only Microsoft.
Oracle stock is up more than 30% in 2023 so far. Notably, ORCL also offers a dividend yield of 1.44%, backed by nine consecutive years of dividend growth - well above the sector norm.
Now, aside from its attractive dividend yield, here are a few reasons to consider adding this software giant to your portfolio.
Strong Fundamentals
Oracle's robust fundamentals are a testament to its operational capabilities. For the latest quarter, the company reported yearly growth in both revenue and earnings, with revenues of $12.4 billion up 8.8% on solid growth in the cloud services segment. Adjusted EPS of $1.19, meanwhile, was up 15.5% from the prior year, and surpassed the consensus estimate of $1.15. The company's EPS has missed expectations on only one instance over the past five quarters.
Oracle has a solid cash balance of $11.6 billion, and reported net cash from operations of about $7 billion for the three months ended Aug. 31 - up 9.1% from the previous year.
Longer-term, the company has displayed considerable revenue and earnings growth. Over the past five years, ORCL's revenues have expanded at a CAGR of 5.24%, while that metric stands at 30.28% for EPS.
That trend is expected to continue in the future, too. Oracle's forward revenue and EPS growth targets are pegged at 11.09% and 24.22%, compared to the sector medians of 8.70% and 7.01%, respectively. Shorter term, analysts expect the company to report earnings growth of 10.5% in the current quarter and 11.4% in fiscal 2024.
Cloud Computing Strength
The broader tailwinds of the cloud computing market should benefit the software giant going forward, as well. In the latest quarter, Oracle's cloud services revenue came in at a mammoth $9.5 billion, up 12% from the year-ago period - driven by the competitive advantages of its products, increased license volumes sold, and the robust expansion of the global cloud computing market.
Moreover, its second-generation cloud infrastructure - powered by Remote Direct Memory Access (RDMA) technology - will allow ORCL to tap into the AI market, as well.
Finally, Oracle is now transitioning its on-premise applications, like PeopleSoft and Siebel, to the cloud. Previously offered as licenses, the company now hosts these applications on OCI, providing the division with an additional revenue stream while saving clients the cost of running their cloud infrastructure.
Analysts See More Upside Ahead
Overall, analysts are upbeat about Oracle's stock, and have deemed it a “Moderate Buy” with a mean target price of $129.71. This denotes an upside potential of roughly 21.6% from current levels. Out of 24 analysts covering the stock, 11 have a “Strong Buy” rating and 13 have a “Hold” rating.
