Database software veteran Oracle (ORCL 2.02%) has caught a tailwind in the artificial intelligence (AI) mania of 2023. Oracle's stock is up by 40% year to date, exactly matching sector rival Microsoft (MSFT 1.82%). But I'm not so sure that Oracle's stock deserves that honor.
I'm not here to sing Microsoft's praises, mind you. The Windows and Office behemoth isn't even my favorite AI stock today. The name simply popped up as a surprisingly comparable Oracle peer that I would much rather own.
So let me show you why I'm not interested in Oracle's stock today, with an illustrative Microsoft cameo or two.
Cohere vs. OpenAI: The race for AI supremacy
Microsoft has a heavy hand in the ongoing AI passion and I'm not sure I can say the same about Oracle.
You know OpenAI, the company behind the ChatGPT tool that started Wall Street's current AI affair? Microsoft signed an exclusive computing partnership with the company way back in 2019 and doubled down on it with a $10 billion investment six months ago.
Several billionaires, private capital firms, and tech giants have added cash infusions along the way, but Oracle is not on that list. Neither is the database expert's multi-billionaire founder and chairman, Larry Ellison. Instead, Oracle signed a non-exclusive deal with a smaller generative AI specialist named Cohere.
Image source: Getty Images.
That's not the worst AI bet in history. Still, Oracle's partner runs a distant second to Microsoft's AI mate. I'll admit that Cohere comes with a sterling pedigree of AI researchers and visionaries, but OpenAI has a huge head start over this smaller operation. Oracle is betting its AI future on a potential contender while Microsoft paired up with an early leader.
In a perfect world, Oracle might have chosen AI veteran, Google parent, and technology infrastructure titan Alphabet (GOOG 9.96%) (GOOGL 10.22%) as a go-to ally in the AI space. Unfortunately, that ship may have sailed more than a decade ago when Oracle sued Google over the Android smartphone software's use of Java programming concepts. The two companies could have much to gain from a closer working relationship, but it's like asking Roadrunner to collaborate with Wile E. Coyote. Not a likely team-up, especially in a field as large and profoundly important as AI systems.
If anything, Oracle's lower-grade AI ambition should come with a risk-based discount to the stock price. I'd be more comfortable with Oracle's market position if the stock didn't come with the same premium price tag as the stronger Microsoft option.
Oracle looks anemic beyond the AI arena, too
It's not all about AI, of course. If you take OpenAI and Cohere out of the equation, Microsoft still ends up in the catbird seat.
Oracle is fighting tooth and nail to stave off open-source database options led by MongoDB (MDB 4.83%), PostgreSQL, and ElasticSearch (ESTC 2.52%). The leading open source database, MySQL, has been an Oracle product since the $7.4 billion buyout of Sun Microsystems in 2009. You know, the one that also gave Oracle the Java-based ammunition to lob lawsuits against Google's Android platform.
But even that potential game-changer is fading out under Oracle's management, which never seemed to appreciate the open source philosophy of projects like MySQL, Java, and OpenOffice. The hungry upstarts are actively stealing market share from Oracle's core business.
So it should come as no surprise that Redmond has delivered consistent business growth far ahead of Oracle's for many years. With or without the AI trend, I simply don't see any reason to pick Oracle's stock as long as Microsoft exists. And like I said, I'm not even comparing Oracle to the best of the best -- just to another software giant whose stock chart closely matches Oracle's in the current market.
In other words, you can find much better AI investments in this market than Oracle.
