Will Oracle Be a Trillion-Dollar Stock by 2030?

Oracle (ORCL 2.02%) was once considered a slow-growth tech giant, but its stock has rallied more than 140% over the past five years and recently hit an all-time high. That rally lifted its market cap to about $350 billion -- but it's still a lot smaller than trillion-dollar leaders Microsoft (NASDAQ: MSFT), Apple, Amazon (NASDAQ: AMZN), and Alphabet.

Could Oracle continue growing and join that elite four-comma club by the end of the decade? Let's discuss its business model, growth strategies for the cloud and AI markets, and its valuations to find out.

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Oracle's core growth strategies

Oracle is the one of the world's biggest database software companies. Its largest competitors are Microsoft and Amazon, which both integrate their own database services directly into their public cloud infrastructure platforms.

Microsoft and Amazon's cloud-based services initially lured businesses away from Oracle's on-premise software. But over the past decade, Oracle transformed those applications into cloud-based services. It also expanded its cloud ecosystem with more enterprise resource planning (ERP), customer relationship management, healthcare IT, and infrastructure services.

Oracle accelerated that transformation by acquiring higher-growth companies such as cloud software giant NetSuite and healthcare IT services provider Cerner. Today, Oracle is a more broadly diversified enterprise software company, even though it still trails far behind Amazon and Microsoft in the public cloud infrastructure market.

As Oracle expanded inorganically, it repatriated a lot of its overseas cash for big buybacks. Over the past five years, it bought back 20% of its outstanding shares to consistently grow its earnings per share (EPS) even as it generated uneven sales growth.

All eyes are on Oracle's cloud business

Oracle started disclosing its growth in cloud services -- which include its software as a service (SaaS) and infrastructure as a service (IaaS) segments -- separately from its license and support revenues in fiscal 2022, which ended in May 2022.

The company's total revenue growth in fiscal 2023 was inflated by its acquisition of Cerner, but its organic growth in total cloud services revenue, including Cerner, has remained robust throughout the first three quarters of fiscal 2024, even as the macro headwinds drove many companies to rein in the cloud-based spending.

Data source: Oracle. Constant currency terms. *Includes its acquisition of Cerner.

Oracle's total cloud services revenue accounted for 38% of its top line last quarter. The expansion of that closely watched business offset the slower growth of its on-premise, license, and support divisions.

Within its cloud services, the growth of its SaaS segment is being driven by the rising usage of its back office database and ERP applications, while the growth of its IaaS business is supported by its Oracle Cloud Infrastructure (OCI) platform.

OCI is still a lot smaller than Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, but it notably pulled ByteDance's TikTok away from Alibaba in 2022, recently signed a new AI infrastructure contract with Nvidia, and is rolling out more generative AI tools. All those moves could help OCI carve out a niche in the crowded cloud infrastructure market.

How much bigger will Oracle grow by 2030?

Oracle's remaining performance obligations for its cloud services -- or the remaining value of its contracts that haven't been booked as revenue yet -- rose 29% year over year last quarter as it secured more large cloud infrastructure contracts from the booming AI market. CEO Safra Catz said the company expected 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."

From fiscal 2023 to fiscal 2026, analysts expect Oracle's revenue to grow at a compound annual growth rate (CAGR) of 8.5%. They expect its EPS to increase at a CAGR of 23% as its cloud margins rise and it buys back more shares.

Oracle's stock isn't a screaming bargain at 28 times next year's earnings, but the ongoing expansion of its cloud and AI businesses could justify that slight premium. If it maintains that forward multiple, matches analysts' estimates, and grows its EPS at a CAGR of 20% from fiscal 2026 to fiscal 2030, its stock price could rise nearly 160% and boost its market cap to around $900 billion. If it grows slightly faster or commands a higher valuation, it could easily become a $1 trillion stock.

Oracle has a clear path toward joining the 12-zero club, but investors should pay close attention to the growth of its SaaS and IaaS businesses. If either of those growth engines sputters out, it could be revalued as a dusty old tech stock again.