Shares of software giant Oracle surged in Tuesday trading, after better-than-expected quarterly earnings showed that artificial intelligence is boosting the company's cloud business.
Oracle said Monday that it earned an adjusted $1.41 per share on sales of $13.28 billion for its February-ending quarter. On average, analysts projected the Austin, Texas-based company would post adjusted earnings of $1.38 per share on sales of $13.28 billion, according to FactSet. Adjusted earnings increased 16% year over year while sales increased 7% for the company's fiscal 2024 third quarter.
Further, the company said it had remaining performance obligations of more than $80 billion, a 29% increase in backlogged work. Oracle Chief Executive Safra Catz said the number highlights the strong demand for its cloud infrastructure business.
"We expect to continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supply — despite the fact we are opening new and expanding existing cloud datacenters very, very rapidly," Catz said in a news release.
On the stock market today, Oracle stock gained 12% to close at 127.54. Oracle stock on Tuesday also traded above a 127.54 buy point from a 38 week-long consolidation pattern, according to IBD MarketSurge charts. The gain marked Oracle's strongest day of trading since Dec. 10, 2021, when shares jumped 15.6%, according to Dow Jones Market Data.
Cloud Backlog Grows
Oracle said its cloud infrastructure revenue increased 49% year over year to $1.9 billion for the February quarter, the company said. That marked a stabilization for the business. Sales grew 52% year over year in its November quarter, 66% in the firm's August quarter and 76% in the May quarter.
The cloud infrastructure business competes against Amazon Web Services and Microsoft Azure to rent computing power and storage to enterprises. Analysts see the offering as a potential growth driver for Oracle as companies adopt generative AI tools, which require massive data and computing power. But Oracle's stock took a hit late last year as sales growth for the cloud infrastructure business slowed in back-to-back quarters.
But the company said demand is strong. Catz touted "large new cloud infrastructure" contracts added by Oracle Cloud Infrastructure (OCI) during the most recent quarter as proof.
"OCI has emerged as the largest driver of our overall revenue acceleration, growing much, much faster than our cloud competitors," Catz said on Oracle's earnings call Monday.
Catz added that 43% of the $80 billion in performance obligations will be recognized as revenue over the next 12 months.
Oracle's Outlook For Q4
Meanwhile, Catz told analysts that Oracle expects year over year revenue growth of about 5% for its fiscal fourth quarter ending in May. That was below the 6% targeted by analysts prior to the report, according to FactSet. But Catz said revenue growth would be about 7% without a drag on sales from integrating Cerner. Cerner is the health-care data systems giant Oracle acquired in 2022 for $28 billion.
Overall, analysts liked what they heard. William Blair analyst Sebastien Naji early Tuesday upgraded Oracle to a positive outperform rating, from a neutral market perform view.
"With the company having laid the groundwork over the last few years with its investments in OCI, we believe Oracle is entering a new phase of higher growth that will drive a step-up in profitability and free cash flow for years to come," Naji wrote.
Meanwhile, Evercore ISI analyst Kirk Materne reiterated an outperform rating for Oracle stock. He also upped his price target for ORCL to 145, from 130.
"We believe Oracle continues to benefit from some large customer wins around OCI and we expect that the company's pipeline of sovereign deals could add another element of growth when looking ahead to (fiscal year 2025)," Materne wrote.
Oracle Stock: Technical Ratings
The strong response helped Oracle break out from a recent slump. Oracle stock fell sharply following its two earnings reports prior to Monday. That left shares about 10% below a six-month high around 130 that it reached in September, as of Monday's close.
Meanwhile, IBD Stock Checkup shows that Oracle has a so-so Composite Rating of 69 out of a best-possible 99, heading into its earnings report. The rating means Oracle stock currently outperforms 69% of all stocks based on fundamental and technical stock-picking criteria.
In addition, shares have a Relative Strength Rating of just 50 out of 99. The RS score measures a stock's price performance over the last 52 weeks against other stocks in IBD's database.
