A "more aggressive pivot" to cloud-based services will help drive sales growth for Oracle, according to an analyst report upgrading Oracle stock to a buy.
Edward Jones analyst Logan Purk bumped ORCL stock up from neutral to buy in a report for clients late Friday. Oracle stock advanced 1% to 114.15 on the stock market today.
"While slower to embrace the cloud, Oracle's significant push into this market should boost overall sales," Purk wrote. "License revenue will fall as customers switch to the cloud model; however, we think Oracle's cloud-based products, such as AI, and its compelling alternative to cloud competitors should drive strong cloud sales growth over the next several years."
$1 Trillion Cloud Opportunity
The nearly half-century old Oracle is in the process of a multiyear transition to offer cloud-based services rather than on-premise and licensed software. Austin, Texas-based Oracle wants to be a leader in offering generative artificial intelligence products to companies.
A major debate for the future of Oracle stock is whether the legacy player can capture share in a cloud-services market dominated by three tech giants: Amazon, Microsoft and Alphabet . It is also competing with cloud-driven database software companies such as MongoDB.
Purk noted, however, that Oracle's management is increasingly aggressive in its pivot to the cloud.
"We think Oracle can be successful, given its wide product offerings that help with mission-critical functions, such as resource planning, record keeping and human resources, as well as its leading database platform," Purk wrote. "With the cloud-market opportunity approaching $1 trillion, we think there is ample opportunity for the company to succeed."
Oracle is still in the early stages of transitioning its sizable customer base to the cloud, Purk added. Customers who move to the cloud typically spend four or five times more on overall services from the company, according to the report.
Further, Purk sees potential for Oracle to improve its profitability as it better integrates Cerner into its business. Oracle acquired the health care data systems giant in 2022 for $28 billion.
Analysts More Positive On Oracle Stock
Purk joins a list of analysts turning positive on Oracle. Upgrades from UBS and Barclays in August and September, respectively, boosted the stock. Both analysts saw potential for Oracle's Cloud Infrastructure business to grow sales through generative artificial intelligence products.
Also, Oracle and Microsoft have been working together on AI products. Last week, Oracle announced that Microsoft will use Oracle's cloud infrastructure to help power Bing AI search features. In September, the companies announced product integrations designed to make it easier to use Microsoft's cloud AI services on top of Oracle database products.
But momentum for Oracle stock took a hit when the company's fiscal first quarter earnings, released Sept. 11, show slowing cloud growth. Cloud revenue grew 30% year over year, to $4.6 billion, compared to 54% cloud revenue growth in the fourth quarter. Shares fell 13% the next day.
In October, Evercore ISI upgraded ORCL stock to a buy. The report cited a potential sales boost from Oracle's cloud efforts, plus a "more interesting entry point" after the company's earnings prompted a sell-off.
Oracle stock has 16 buy or overweight ratings from Wall Street analysts, according to FactSet, representing about 47% of ratings. That is up from 37% positive views in November 2022.
Oracle Stock Up 35% This Year
Entering trading Monday, Oracle stock was up 35% this year.
According to the IBD Stock Checkup tool, Oracle has a Composite Rating of 90 out of a best-possible 99. The rating means Oracle stock currently outperforms 89% of all stocks based on fundamental and technical stock-picking criteria.
Also, Oracle is on the IBD Tech Leaders list.
In addition, shares have a Relative Strength Rating of 93 out of 99. Relative Strength measures how a stock's price performance over the last 52 weeks holds up against other stocks in IBD's database.
Oracle stock is in a consolidation pattern with a buy point of 127.64, according to IBD MarketSmith.
