Oracle (ORCL +2.00%) was once considered a slow-growth tech stock that was mainly owned for stable returns instead of aggressive gains. It was one of the world's largest database software providers, but that market was cooling off and it hadn't pivoted toward cloud-based services as quickly as Microsoft, Amazon, and other tech giants. It plowed a lot of its cash into buybacks, which boosted its EPS but implied it was running out of ways to expand its business.
But over the past five years, Oracle's stock tripled in value as the S&P 500 advanced less than 90%. The bulls rushed back as it expanded its cloud-based services, curbed its dependence on its on-premise software, and consistently grew its revenue again. Oracle's market cap of $450 billion still makes it much smaller than Microsoft, which is worth a whopping $3.2 trillion, but could it keep growing and eclipse the tech titan's valuation by 2030?
Image source: Getty Images.
How rapidly is Oracle growing?
From fiscal 2020 to fiscal 2024, which ended this May, Oracle's revenue grew at a compound annual growth rate (CAGR) of 8% as its earnings per share increased at a CAGR of 5%.
|
Metric |
FY 2020 |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
|---|---|---|---|---|---|
|
Revenue growth |
(1%) |
4% |
5% |
18% |
6% |
|
EPS growth |
4% |
48% |
(47%) |
27% |
21% |
Data source: Oracle.
Oracle's EPS was lifted by a one-time tax benefit in fiscal 2021, but it declined after it lapped that gain in fiscal 2022. In fiscal 2023, its revenue was boosted by its $28 billion acquisition of the healthcare IT services giant Cerner, which closed at the beginning of fiscal 2023 (in June 2022). It also bought back 16% of its shares over the past five years.
Oracle's long-term strategy is to expand its higher-growth cloud software and cloud infrastructure services segments to curb its dependence on its slower-growth on-premise software. Its core growth engines include its Netsuite and Fusion enterprise resource planning services and its Oracle Cloud Infrastructure platform, and it's been gradually tethering more of Cerner's cloud services to that expanding ecosystem.
NYSE: ORCL
Key Data Points
Oracle generated 42% of its revenue from its cloud-based software as a service and infrastructure as a service segments in the first quarter of fiscal 2025. That combined segment's revenue rose 22% year over year -- which only represented a slight slowdown from its 23% growth in the fourth quarter of fiscal 2024.
For the full year, Oracle expects its total revenue to grow by the "double digits" as its total cloud infrastructure revenue accelerates from its 50% growth in fiscal 2024. It expects that growth to be driven by its new Gen 2 Cloud Infrastructure platform, which is built to handle the market's soaring demand for more robust AI services.
Oracle probably won't become more valuable than Microsoft
From fiscal 2024 to fiscal 2027, analysts expect Oracle's revenue to grow at a CAGR of 12% as its EPS increases at a CAGR of 22%. Those growth rates are robust, but its stock isn't a screaming bargain at 30 times next year's earnings.
Assuming it maintains that valuation, matches Wall Street's expectations, and grows its EPS at a CAGR of 20% from fiscal 2027 to fiscal 2031, its stock price could rally more than 160% to about $420 by the end of the decade. That would boost its market capitalization to approximately $1.2 trillion -- but it would still be less valuable than today's Microsoft.
As for Microsoft, the tech titan still has plenty of irons in the fire. Its Azure cloud infrastructure platform is expanding, its other cloud services are growing, and it's integrating a lot of OpenAI's generative AI tools into its own ecosystem. It also continues to expand its Xbox gaming ecosystem with new cloud-based services and big acquisitions.
From fiscal 2024, which ended this June, to fiscal 2027, analysts expect Microsoft's revenue and EPS to grow at a CAGR of 14% and 15%, respectively. Like Oracle, its stock also doesn't look cheap right now at 32 times next year's earnings. But if Microsoft maintains that forward valuation, matches the consensus forecasts, and grows its EPS at a CAGR of 15% through fiscal 2031, its market cap could swell nearly 140% to $7.6 trillion by 2030.
Therefore, Oracle won't come anywhere close to matching Microsoft's market cap unless the latter gets broken up into smaller companies by antitrust regulators. So instead of comparing Oracle to Microsoft or other cloud giants, investors should simply focus on its resilience and how it could continue to beat the market with its stable long-term growth.
