Many investors might dismiss Oracle (ORCL 2.02%) as a slow-growth tech stock which is owned for stability and income instead of big, long-term gains. But over the past five years, Oracle's stock actually rallied 130% and generated a total return of 150% after including its reinvested dividends. Alphabet (GOOG 9.96%) (GOOGL 10.22%), which doesn't pay any dividends, posted a gain of 176% during the same period.
Oracle impressed investors with the expansion of its cloud ecosystem and big buybacks. However, its market cap of $316 billion still makes it a lot smaller than Alphabet, which is now worth $1.91 trillion. So could Oracle follow Alphabet into the 12-zero club and eclipse its market cap by the end of the decade?
Image source: Getty Images.
How did Oracle impress the bulls again?
Oracle is the world's largest database-software company. Over the past decade, it gradually transformed its on-premise database software into cloud-based services, which were easier to scale and locked in its clients with sticky subscriptions.
That transformation was driven by a long list of acquisitions, including the cloud-software giant NetSuite in 2016 and the healthcare IT services leader Cerner in 2022. It expanded that cloud-based ecosystem with its new enterprise-resource planning (ERP) services and its own Oracle Cloud Infrastructure (OCI) platform.
From fiscal 2018 to fiscal 2023 (which ended last May), Oracle's revenue grew at a compound annual growth rate (CAGR) of 5%. That growth rate might seem sluggish, but it represented a significant acceleration from its CAGR of 1% from fiscal 2013 to fiscal 2018. That acceleration was driven by the growth of its software as a service (SaaS) and infrastructure as a service (IaaS) businesses, which collectively generated 37% of its revenue in its latest quarter.
As Oracle's revenue growth accelerated, it repatriated a lot of its overseas cash and bought back a fifth of its shares over the past five years. As a result, its adjusted earnings per share (EPS) grew at a CAGR of 10% from fiscal 2018 to fiscal 2023.
Oracle's slow but steady growth made it an appealing stock to own as the market was rattled by the pandemic, inflation, rising interest rates, and geopolitical conflicts over the past five years. Analysts expect its revenue and EPS to grow at a CAGR of 8% and 23%, respectively, from fiscal 2023 to fiscal 2026 as the macroenvironment improves.
How much could Oracle be worth by 2030?
Oracle currently trades at 29 times forward earnings. If it maintains that multiple, matches analysts' expectations through fiscal 2026, and continues to grow its EPS at a reasonable CAGR of 15% from fiscal 2026 to 2030, its stock could be trading at about $290 per share with a market cap of $800 billion by the beginning of the final year.
That would represent a respectable gain of 150% from its current price, but it would still be less than half the size of Alphabet today. Alphabet -- which is expected to grow its revenue and EPS at a CAGR of 11% and 16%, respectively, from 2023 to 2025 -- should also become much larger by 2030 as it expands its advertising and cloud-infrastructure platforms. Therefore, it seems unlikely that Oracle will join the trillion-dollar club or be worth more than Alphabet by the end of the decade.
It's still a stable, long-term investment
Oracle might not be mentioned in the same breath as the FAANG stocks anytime soon, but it's still a sound investment for long-term investors. Its dominance of the database-software market, the expansion of its cloud-based ecosystem, its big buybacks, and its decent forward-dividend yield of 1.4% should help it ride out the macroheadwinds.
