Oracle (ORCL 2.02%) is still a small player in the cloud infrastructure market. The company generated $1.4 billion in cloud infrastructure-as-a-service (IaaS) revenue in the fiscal fourth quarter, which ended May 31. That's a small fraction of the $21.4 billion in revenue produced by market leader Amazon Web Services (AWS) in the latest quarter.
What Oracle does have, though, is a much higher growth rate. Oracle's IaaS revenue grew 76% year over year in the fiscal fourth quarter, far faster than the largest players. AWS managed 16% growth in Amazon's latest quarter, Microsoft's Azure posted 27%, and Alphabet's Google Cloud expanded by 28%.
While other cloud infrastructure providers have seen their growth rates drop as businesses pull back on spending in a tough economy, Oracle's growth has accelerated dramatically. In the fiscal fourth quarter of last year, Oracle's IaaS revenue was growing at a 36% rate. A year later, that rate has more than doubled. The popularity of Oracle's cloud for running generative artificial intelligence (AI) workloads has contributed to this acceleration.
Prolific cloud growth
Oracle's cloud business extends beyond infrastructure. The company sells a wide array of cloud-based software-as-a-service (SaaS) applications, and those are seeing strong demand as well. Overall SaaS revenue grew by 47% year over year, although the acquisition of Cerner drove some of that growth. Within the SaaS business, Fusion enterprise resource planning (ERP) revenue rose 28%, while NetSuite ERP revenue jumped 24%.
Oracle's cloud database products are also growing quickly. Overall cloud database services grew by 41%, while autonomous database revenue jumped 47%. Oracle's Cloud@Customer offering, which allows Oracle customers to run cloud services within their own data centers, saw consumption rise by 60%. Oracle expects the migration of on-premises databases to its Cloud@Customer offering to help accelerate growth.
One thing to note is that Oracle's overall organic revenue growth rate was anemic. While the company reported year-over-year revenue growth of 17%, the fiscal fourth quarter of 2023 included a full quarter's contribution from Cerner. The acquisition of Cerner closed in early June of last year, so the prior-year period didn't include any Cerner revenue.
Cerner contributed $1.5 billion of Oracle's $13.8 billion in revenue in the fourth quarter. Backing that Cerner revenue out, Oracle's organic revenue grew by just 4%. While Oracle's cloud businesses are booming, everything else is not doing nearly as well.
Is Oracle stock a buy?
Shares of Oracle carved out a new all-time high following the company's earnings report, a sign that investors are excited about the company's cloud computing prospects. But with overall organic growth sluggish at best, paying a large premium for the stock may not be the best idea.
Oracle is valued at about $322 billion. The company generated generally accepted accounting principles (GAAP) net income of $8.5 billion, non-GAAP net income of $14.2 billion, and free cash flow of $8.5 billion. Oracle stock trades for 38 times free cash flow and about 23 times non-GAAP net income.
Given the pace of Oracle's organic growth, the stock seems a bit too expensive to consider seriously. The cloud infrastructure business is promising, though. For investors who are confident that Oracle can keep growing the cloud business at a blistering rate and who are willing to pay a lofty price, the stock could be an attractive option.
Oracle's overall growth should accelerate as the cloud business becomes a bigger part of the company's total revenue. On the flip side, free cash flow will remain depressed as Oracle spends heavily to expand its cloud data centers. The company has the potential to become a cloud giant, but market-beating returns for investors are not guaranteed, given the pricey valuation.
