The U.S. economy has a remarkable track record of producing the world's most valuable companies:
- United States Steel became the first $1 billion company in 1901.
- General Motors rode the automotive boom to become the first-ever $10 billion company in 1955.
- General Electric, which manufactures refrigerators and airplane engines, among many other things, became the world's first $100 billion company in 1995.
- Apple hit the most significant milestone to date when its valuation crossed $1 trillion for the first time in 2018, thanks to the success of devices like the iPhone.
Apple is still the world's largest company, with a market capitalization of $3.7 trillion. But since 2018, seven other American technology companies have joined it in the trillion-dollar club: Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Tesla, and Broadcom.
I think one more company is set to earn its membership in this club within the next four years. Some of the biggest artificial intelligence (AI) developers in the world are lining up to rent Oracle's (ORCL +0.88%) industry-leading data center infrastructure, and this part of its business could grow more than tenfold, according to management's guidance.
Oracle's market cap is $463 billion as of this writing, so if it does join the $1 trillion club in four years, as I predict, investors who buy its stock today could earn a very nice return of 116%.
NYSE: ORCL
Key Data Points
Oracle's data centers are hot property right now
Nvidia CEO Jensen Huang predicts data center operators like Oracle, Microsoft, and Amazon will spend $1 trillion over the next four years on upgrading their infrastructure to meet demand from AI developers. That involves filling them with thousands of graphics processors (GPUs), which are specialized chips designed to ingest and process mountains of data for AI workloads.
Nvidia supplies the most powerful GPUs in the industry. And Oracle's Cloud Infrastructure (OCI) supercluster technology enables developers to scale up to 65,000 of Nvidia's H200 GPUs, which is the highest number in the industry. To put it simply, access to more chips can enable developers to build and deploy larger models, which translates into "smarter" AI software.
OCI's random direct memory access (RDMA) technology also allows data to flow from one point to another much faster than traditional Ethernet networks. And since most developers rent computing capacity by the minute, faster processing can equal major cost savings.
During its recent fiscal 2025 second quarter (ended Oct. 31), Oracle said GPU use climbed by 336% compared to the same period in fiscal 2024, which speaks to how quickly demand is ramping up. So far, OCI's infrastructure has attracted top AI start-ups like Cohere, OpenAI, and Elon Musk's xAI.
Oracle currently operates 98 data center regions and plans to grow that footprint by more than tenfold to somewhere between 1,000 and 2,000 locations over time. The company's OCI will soon offer new clusters featuring over 131,000 of Nvidia's latest Blackwell GPUs, which will pave the way for the most advanced AI applications yet, and potentially drive a new wave of demand.
Image source: Getty Images.
OCI is Oracle's fastest growing business
Oracle generated $14.1 billion in total revenue during the second quarter, but the OCI segment was responsible for just $2.4 billion of that total, so it isn't a massive contributor yet.
It's still smaller than Oracle's software-as-a-service (SaaS) business, which generated $3.5 billion in revenue during the quarter. It offers ready-made cloud applications to help businesses across dozens of industries manage everything from their inventory to their payroll.
However, OCI is consistently the star performer when it comes to growth. While SaaS revenue grew by 10% year over year during the second quarter, OCI revenue soared by 52%. It was the fastest growth in a year, and it marked the second consecutive quarter of acceleration.
OCI revenue would have grown even faster if Oracle had more data center capacity available, but it's still struggling to meet demand even though it's building infrastructure as quickly as possible.
That demand can be seen in Oracle's remaining performance obligations (RPOs), which soared by 50% during the second quarter to $97 billion. RPOs typically convert into revenue at a future date once the company can deliver the agreed-upon services -- i.e., OCI revenue could surge once it can bring more data centers on line based on the deals it has already locked in.
Oracle CEO Safra Catz predicts RPOs will grow even higher from here because of the sheer volume of deals the company is signing, including a major one with Meta Platforms recently. Meta developed the world's most popular open-source large language models (LLMs) called Llama, which have been downloaded over 600 million times, and the company will shift some of its training workloads over to Oracle's infrastructure.
Oracle has a realistic pathway to the $1 trillion club
Oracle stock trades at a price-to-earnings ratio (P/E) of 40.5, which is a slight premium to the average P/E of Microsoft, Amazon, and Alphabet (36.7). They are three of the biggest operators of AI data center infrastructure besides Oracle:
AMZN PE ratio, data by YCharts.
But Oracle stock looks much more attractive when we measure its value based on its potential earnings. For example, Wall Street's consensus estimate (provided by Yahoo!) suggests the company's earnings per share (EPS) will grow by 14.4% to $7.05 during its fiscal year 2026 (which starts in June of this calendar year). That places its stock at a forward P/E of just 23.5.
Mathematically speaking, Oracle stock would have to soar by 72.3% over the next 18 months just to maintain its current P/E of 40.5, which would value the company at almost $800 billion. If it grows its EPS by 14.4% again in fiscal 2027 and fiscal 2028 while maintaining the same P/E, it will be a $1.04 trillion company.
Even if its P/E settles at 36.7, its valuation would still be around $950 billion.
But Oracle's earnings actually grew by 22% in the first half of fiscal 2025, and I think that pace is likely to persist (and maybe even accelerate), suggesting Wall Street might be too conservative. Remember: The company plans to grow its data center footprint more than tenfold. And its infrastructure is unique because it's fully automated, meaning it should become significantly more profitable at scale.
In fact, during the last couple of quarterly conference calls with investors, Catz talked about how the gross profit margin of the infrastructure business is climbing as more data centers come on line. If Oracle grows its earnings by 22% annually instead of 14% through fiscal 2028, it will be a shoo-in to join the $1 trillion club even if its P/E drops to around 34.
