Oracle (ORCL +3.07%) and Amazon (AMZN +2.33%) represent two different ways to invest in the growing cloud and artificial intelligence (AI) services markets.
Oracle, one of the world's largest database software companies, transformed many of its on-premise applications into cloud-based services over the past decade. It also expanded its own public cloud infrastructure platform to provide remote storage and computing power for enterprise customers. Amazon is the world's largest e-commerce company, but it also owns the largest cloud infrastructure platform, Amazon Web Services (AWS).
Oracle is often considered a slower-growth stock than Amazon. But over the past three years, Oracle's stock more than doubled as Amazon's stock rose about 40%. Let's see why Oracle outperformed Amazon, and if it remains the better buy right now.
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Oracle is still growing at a steady rate
Oracle generated 32% of its revenue (excluding its acquisition of the healthcare IT giant Cerner in 2022) from its cloud-based services in fiscal 2024 (which ended in May 2024). That closely watched segment -- which hosts its cloud-based database services, enterprise resource planning (ERP) services, and Oracle Cloud Infrastructure (OCI) services -- grew revenue 26% for the full year. That only represented a slight slowdown from its 29% growth (also excluding Cerner) in fiscal 2023.
NYSE: ORCL
Key Data Points
Yet Oracle still generates the rest of its revenue from its legacy on-premise and cloud licensing businesses. Those slower-growth businesses partly offset the faster expansion of cloud-based services, but its total revenue still rose 6% for the full year.
From fiscal 2024 to fiscal 2027, analysts expect Oracle's revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 12% and 20%, respectively. That growth should largely be driven by the expansion of OCI, which has been rolling out more dedicated tools for hosting generative AI applications, and its own cloud-based services. It will also likely continue to expand cloud and AI ecosystems with more acquisitions.
That outlook seems bright, but investors should be mindful of the competitive threats. OCI is still a tiny underdog in the cloud platform race compared to AWS and Microsoft Azure, and those public cloud giants have also been expanding their own integrated database services to challenge older market leaders like Oracle.
Amazon's core businesses are warming up again
Amazon still generates most of its revenue from its e-commerce marketplaces, but most of its profits come from AWS' higher-margin business. In 2024, AWS only generated 17% of Amazon's net sales but accounted for 58% of its operating profit.
AWS' revenue rose 19% for the full year. A lot of that growth was driven by the AI market, which drove more companies to upgrade their cloud-based infrastructure. AWS has also been rolling out custom application programming interfaces (APIs) like Bedrock, which can be used to build customized chatbots and generative AI tools.
NASDAQ: AMZN
Key Data Points
Amazon usually subsidizes the growth of its lower-margin marketplaces with AWS' higher-margin revenue. That unique strategy allows it to keep expanding its e-commerce ecosystem with loss-leading strategies, while the cash generated by its e-commerce ecosystem can support AWS' ongoing expansion.
That flexible business model widens its moat against both its cloud and e-commerce competitors. However, Amazon still needs to stay ahead of tough rivals like Microsoft in the cloud infrastructure market, while its e-commerce business faces intense competition from Chinese cross-border marketplaces like PDD's Temu.
From 2024 to 2027, analysts expect Amazon's revenue and EPS to grow at a CAGR of 10% and 20%, respectively. Its growth should warm up again as the macro environment improves and the AI market expands.
Which stock is the better buy?
Oracle outperformed Amazon over the past three years because Oracle's cloud business continued to expand as inflation and rising rates rattled the broader markets. Amazon's e-commerce business was less resistant to those macro headwinds.
But as interest rates decline and the macro environment stabilizes, Amazon might just win back more investors as its e-commerce and cloud businesses steadily expand again. Yet neither of these stocks can be considered a bargain right now. Oracle was recently trading at 33 times forward earnings, while Amazon had a higher forward multiple of 36.
Investors should take Wall Street's estimates with a grain of salt, but Oracle actually trades at a lower forward valuation while growing at a slightly faster rate than Amazon. So while both stocks might be reliable long-term plays on the expanding cloud and AI markets, Oracle looks like a slightly more balanced play on those trends than Amazon right now.
