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Chinese artificial intelligence (AI) startup DeepSeek revealed shocked U.S. investors with claims it built its models at a fraction of the cost and with lower-tier chips. Companies like Microsoft (MSFT), Alphabet (GOOGL), Nvidia (NVDA), and OpenAI immediately started feeling the heat.
DeepSeek is open-source and the company claims that its models consume much less energy. This allowed DeepSeek to dethrone ChatGPT on the App Store as the most-downloaded free app.
So, what does all of this mean for President Donald Trump’s Stargate initiative, which entails an investment of $500 billion over four years to create 100,000 jobs in the United States? While key players in the program like Microsoft and Nvidia have rightly grabbed attention due to the recent DeepSeek developments, Oracle (ORCL) has not been in the spotlight as much. However, it is still a critical component of Trump’s AI initiative and investors should be made aware of its current standing in terms of its financials and strategies so that they can make an informed decision about it.
About Oracle Stock
Founded in 1977, Oracle is a leading global technology company specializing in database software, cloud solutions, and enterprise software products. The company has been transitioning its business toward cloud-based services, which has been a key driver of growth in recent years led by its Oracle Cloud Infrastructure (OCI).
Valued at a market capitalization of $458 billion, ORCL stock is up 42% over the past year. The stock also offers a dividend yield of 1%, backed by 10 years of consistent growth.
Solid Financials
Oracle’s decades of existence and strong brand value is reflected in its financial position. Results for the most recent quarter missed on both the revenue and earnings front.
Total revenue for the quarter came in at $14.06 billion, rising 9% from the previous year with the core Cloud services business witnessing an even better yearly growth of 12% to $10.8 billion. Earnings went up by 10% in the same period to $1.47 per share, just missing the consensus estimate of $1.48.
The company reported adjusted operating income of $6.1 billion, up 10% from the previous year. The combination of rising revenues with operating income growth is evidence of the company’s competitive position. Additionally, total remaining performance obligations, a key indicator of revenue visibility, recorded impressive yearly growth of 49% to $97 billion.
Meanwhile, the cash flow scenario also remained steady with the company reporting net cash from operating activities of $8.7 billion for the six months ended Nov. 30. This marked yearly growth of 22.7%. Overall, Oracle closed the quarter with a healthy cash balance of $10.9 billion with short-term debt levels of $8.2 billion.
Strategic Tailwinds
Oracle has successfully evolved from a database provider into a full-service cloud platform, positioning itself as a competitor to Amazon Web Services and Microsoft Azure. A key pillar of its strategy is its approach to AI, where it trains models directly on customer data within its own infrastructure. This ensures heightened privacy, security, and accuracy by eliminating the need to transfer sensitive information externally. The company’s competitive edge lies in its highly efficient cloud architecture, which enables lower costs for customers.
Despite recent concerns stemming from the emergence of DeepSeek’s AI models, Oracle’s growth trajectory remains strong. While DeepSeek’s advancements have raised questions about competition in AI, Oracle’s enterprise AI solutions differentiate themselves by leveraging internal data to enhance productivity and streamline workflows, a stark contrast to general-purpose AI applications like ChatGPT. Oracle’s AI agents and GenAI capabilities, particularly within Oracle Fusion Cloud Sales, optimize efficiency by integrating multiple software modules to deliver personalized, contextually relevant user experiences. This focus on enterprise AI is expected to materially reduce productivity costs while reinforcing Oracle’s foothold in the sector.
Government backing for Oracle’s data center expansion could further accelerate its growth, solidifying the U.S.’s position in AI dominance and strengthening Oracle’s prospects. The Stargate initiative, a large-scale AI data center expansion, is poised to be a transformative catalyst for the company. Even before this initiative, Oracle’s infrastructure as a service business was expected to surge from $200 million in fiscal 2024 to an estimated $20 billion by fiscal 2029. Beyond constructing large AI data center campuses, Oracle also stands to benefit financially as an equity partner in the Stargate venture, a move that could yield significant long-term gains.
The company has also secured high-profile customers, including a $10 billion cloud contract from Elon Musk’s startup, xAI, with Musk reportedly planning to lease Oracle’s cloud servers for multiple years. Additionally, Oracle has partnered with Palantir (PLTR) to deliver AI-driven solutions to governments and enterprises, further expanding its reach in critical industries. In a notable move, Oracle also signed an agreement with OpenAI in June, despite OpenAI’s deep integration with Microsoft Azure. This deal underscores Oracle’s growing presence in AI infrastructure and its ability to attract major players in the space. With a robust cloud strategy, strong AI differentiation, and increasing government and enterprise adoption, Oracle appears well-positioned for sustained growth in the evolving technology landscape.
Analyst Opinion
Overall, analysts have a rating of “Moderate Buy” for ORCL stock, with a mean target price of $194.68, denoting upside potential of roughly 18.7% from current levels. Out of 33 analysts covering the stock, 21 have a “Strong Buy” rating, 11 have a “Hold” rating, and one has a “Strong Sell” rating.
