Oracle Corp. (ORCL) shares could be set for a breakout this month, after hitting an all-time high Friday, as the cloud-focused software group, one of the market's cheapest AI plays, is set to release its fourth quarter earnings after the close of trading on Monday.
Oracle, which accelerated its earnings potential last year with the $28 billion purchase of Cenrer (CERN), the second-largest designer of software used by doctors and hospitals to mange and store medical records, is set to become one of the early beneficiaries of the buildout in AI spending following a partnership with chipmaker Nvidia (NVDA) it inked in March.
The deal makes Oracle the first public cloud company to offer both DGX Cloud and Nvidia AI Foundations to its broader offerings, and builds on a deal from October of 2022 that added thousands of Nvidia chips to Oracle Cloud Infrastructure (OCI), its umbrella division.
The partnership effectively means companies can 'rent' Nvidia's supercomputers, and their AI design capabilities, through Oracle's cloud business and its Remote Direct Memory Access, or RDMA technology, which facilities fast data transfers between computer systems.
"We expect AI to benefit Oracle, like Microsoft, both in its ability to leverage the increasing scale of its IaaS (OCI) and PaaS (database) infrastructure to host the acceleration of AI workloads," said KeyBanc Capital Markets analyst Michael Turits, noting the Nvidia partnership and its "opportunity to deploy and monetize AI across its broad scope of enterprise applications."
Turits, who lifted his price target on Oracle by $15 to $120 per share on Thursday with an 'overweight' rating, also said that "a lot of attention will likely be on understanding the demand for AI services in OCI, how it is differentiated vs. public cloud peers, and the associated capex to support AI workloads."
Oracle shares were marked 1.9% higher in early afternoon trading Friday to change hands at $109.56 each, a move that would extend the stock's year-to-date gain to around 31% and value the Austin, Texas-based tech group at around $296 billion.
The stock hit an all-time high of 110.15 earlier in the session.
Barclays analyst Raimo Lenschow, who lifted his price target on Oracle by $28, to $113 per share, earlier this week said investors are likely to focus on "the OCI acceleration that management had suggested last quarter and which will likely come through from larger customers ramping but also strong demand for AI capabilities that Oracle can offer."
Piper Sandler analyst Brent Bracelin, meanwhile, sees "favorable AI and cloud tailwinds" for Oracle heading into Monday's fourth quarter earnings report, and boosted his target price by $26, to $130 per share, in a Friday research note.
Oracle is expected to post a bottom line of $1.58 per share, up 4 cents from the same period last year, with revenues rising 16% to $13.73 billion.
Oracle itself said it expects to add more healthcare customers thanks to the Cenrer acquisition, and said fourth quarter revenues would grow between 15% and 17% with profits coming in between $1.50 and $1.60 per share.
Oracle is also one of the cheapest mainstream AI stocks in the market, trading at around 19.6 times its projected 2024 fiscal year earnings. That compares to around 35.3 for Microsoft (MSFT), 27.5x for Google parent Alphabet (GOOGL) and a staggering 200x for Nvidia.
"There's more demand for AI processing than there is available capacity ... and we are expanding as fast as we can," Oracle's chairman and chief technology officer told investors on a conference call in early March. "And people are coming to us. Nvidia is often recommending us as the best cloud for AI, and this is a good time to be there."
