Artificial intelligence (AI) has turned out to be a terrific catalyst for Oracle (ORCL 3.93%) in 2024, with shares of the cloud infrastructure and database software provider jumping 74% so far this year, as of this writing.
This impressive rise in Oracle stock isn't surprising, as the company's business has received a big boost because of the growing demand for its cloud infrastructure that's being rented by companies to train and deploy AI models. The good part is that the robust demand for cloud AI services has allowed Oracle to build an impressive revenue pipeline, which is expected to drive a nice acceleration in the company's growth.
NYSE: ORCL
Key Data Points
More importantly, the market for cloud-based AI services that Oracle's cloud infrastructure is serving is currently in its early phases of growth. That's precisely the reason why this AI stock may be able to sustain its impressive growth momentum in 2025, and beyond.
Here's a look at the reasons why buying Oracle stock looks like a no-brainer.
Oracle's AI-driven growth potential points toward a bright future
During Oracle's fiscal 2025 first-quarter results (ended Aug. 31) in September this year, it reported an 8% year-over-year increase in revenue to $13.3 billion. More importantly, the company said it expects fiscal 2025 growth to land in double digits on the back of solid growth in cloud infrastructure revenue.
Oracle's full-year guidance suggests that its revenue growth is set to accelerate over the 6% improvement it witnessed in its top line in fiscal 2024 to $53 billion. So the company's revenue should ideally hit $58.3 billion this year. The good part is that analysts are expecting Oracle's revenue growth to accelerate over the next couple of fiscal years as well.
ORCL Revenue Estimates for Current Fiscal Year data by YCharts
It won't be surprising to see the company indeed deliver what Wall Street is looking for. That's because the company started the first quarter of fiscal 2025 with a 53% increase in its remaining performance obligations (RPO) to $99 billion. For comparison, Oracle's RPO increased 44% in the fourth quarter of fiscal 2024.
The acceleration in this metric bodes well for Oracle, as the RPO refers to the future value of a company's unfulfilled contracts. That figure could have been higher, but Oracle said the demand for cloud infrastructure services is outpacing supply. Not surprisingly, the company is looking to bring more capacity online, using Nvidia's graphics processing units (GPUs) to build huge data centers to help its customers train large AI models.
Oracle's data centers currently serve 85 regions globally, and it has another 77 that are either under construction or are in the planning phase. This aggressive expansion should allow Oracle to meet the fast-growing demand for its cloud infrastructure. It is worth noting that its cloud-related RPO increased by more than 80% in the previous quarter and represents three-fourths of its overall RPO. There is more room for growth in this space, given booming demand for cloud-based AI services.
Oracle says that it witnessed a 162% year-over-year increase in cloud-native AI customers in the previous quarter. The total contract value of its AI-specific deals in fiscal Q1 came in at $3 billion. Goldman Sachs projects that the cloud infrastructure-as-a-service (IaaS) market that Oracle serves could be worth a whopping $580 billion in 2030, accounting for 29% of the overall cloud spending of $2 trillion by the end of the decade.
The investment bank adds that generative AI-based cloud spending could range between $200 billion to $300 billion of the overall market. Oracle is well on its way to making the most of this multibillion-dollar opportunity, with its cloud IaaS revenue jumping by 46% year over year in fiscal Q1 to $2.2 billion. Meanwhile, the fact that it landed $3 billion worth of AI-related cloud contracts during the same quarter suggests that this business is set for stronger growth in the future.
So, it wasn't surprising to see Oracle management expecting faster growth in cloud infrastructure revenue this fiscal year, compared to the previous period. More importantly, the long-term opportunity in this market is the reason why Oracle raised its long-term growth forecast, which could lead to more stock upside in the long run.
The stock's valuation and long-term growth potential make it worth buying
Oracle expects to achieve $66 billion in revenue in fiscal 2026, which would be a 13% increase over its fiscal 2025 projection. Additionally, it is anticipating at least 10% growth in its earnings-per-share growth next year. However, in fiscal 2029, Oracle sees its top line hitting at least $104 billion. That would translate into a three-year compound annual growth rate of more than 16% between fiscal 2026 and fiscal 2029.
Considering that Oracle is now trading at 29 times forward earnings, as compared to the tech-heavy Nasdaq-100 index's forward earnings multiple of 31.3, it isn't too late for investors to buy it. The sharp jump in Oracle's revenue growth, along with the faster increase in its bottom line, points toward improved earnings power in the long run, which should allow this cloud stock to maintain its healthy stock market momentum going forward for a long period.
