Oracle may no longer score an expanded cloud contract from Elon Musk's AI startup, but Oracle stock analysts say the company still has plenty of artificial intelligence demand to serve.
Shares of the software giant fell Tuesday after The Information reported that talks had stalled between Oracle and Musk's xAI startup for a cloud server deal. Musk later wrote on X (formerly Twitter) that his startup plans to build its own data center to train AI models, rather than expand existing work with Oracle.
The expanded deal could have been worth up to $10 billion, according to The Information. Oracle declined to comment when reached by IBD Tuesday.
Still, analysts appeared ready to shrug off the lapsed deal. Jefferies Brent Thill told clients late Tuesday that Musk's "U-turn" will have no impact on Oracle's backlog of cloud work. Oracle had $98 billion in remaining performance obligations as of its May-ending fiscal fourth quarter, Thill added.
Oracle "continues to see exceedingly strong demand despite the change in direction from xAI, with its pipeline growing faster than bookings and revenue," Thill wrote in a client note.
Meanwhile, Evercore ISI analyst Kirk Materne told clients early Wednesday that Oracle's cloud business still has "plenty of room to grow." That's even without the extra spending from Musk.
"Given that the deal was not in the RPO figure last quarter, there is no real risk to estimates from a deal not consummating," Materne wrote. "While Oracle's opportunity to support Gen AI workloads is an important part of the (Oracle Cloud Infrastructure) story, the bigger opportunity in the near-term is continuing to win more traditional workload deals from larger organizations and sovereign governments."
Thill rates Oracle stock a buy, while Materne hold a positive outperform rating.
AI Push Powers Oracle Stock
On the stock market today, Oracle stock is up 1% at 142.03. Shares fell 3% on Tuesday.
Oracle's cloud infrastructure business, called OCI, rents cloud computing servers and storage to enterprises. The business is a key part of Oracle's transition from legacy database provider to cloud services company and is closely watched by investors.
Oracle Chairman Larry Ellison highlighted Musk's xAI as one of Oracle's cloud AI startup clients on the company's earnings call in December.
Musk wrote on X.com Tuesday that xAI previously contracted for 24,000 H100 chips from Nvidia through Oracle. The company used the computing power to train its upcoming Grok 2 large language model. But xAI is now building its own data center, he said, with 100,000 Nvidia processors to train its AI models.
Oracle stock is up 36% this year. That easily outpaces a 17% gain for the S&P 500.
Shares gained 13% following Oracle's fiscal fourth-quarter earnings report on June 11. Oracle Chief Executive Safra Catz said the company is seeing "enormous demand for training AI large language models."
The post-report gains saw Oracle stock earlier break out of a cup base with a 132.77 buy point, according to IBD MarketSurge charts. Meanwhile Oracle has an IBD Composite rating of 93 out of a best-possible 99, according to IBD Stock Checkup.
