Oracle's (ORCL 1.28%) stock price rallied 85% over the past two years, outperforming the S&P 500's 45% comparable gain and boosting its market capitalization to $420 billion. That rally was fueled by the growth of its cloud and AI businesses.
Oracle was once considered a slow-growing database software provider, but it transformed a lot of its on-premise software into cloud-based services over the past decade. It also acquired a lot of higher-growth companies, including NetSuite and Cerner, to accelerate that strategy as it expanded its own cloud infrastructure platform.
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From fiscal 2024 (which ended last May) to fiscal 2027, analysts expect Oracle's revenue and EPS to grow at a compound annual growth rate (CAGR) of 13% and 19%, respectively. The secular expansion of the AI market should continue to generate strong tailwinds for its database and cloud infrastructure services.
Assuming Oracle meets those expectations and still trades at 30 times forward earnings by the beginning of 2027, its stock price could rise 23% to $189 per share and boost its market cap to approximately $517 billion. That would be a solid two-year gain, but two less valuable tech stocks -- Alibaba (BABA 0.37%) and Strategy (MSTR 4.54%) -- might generate even bigger gains and eclipse Oracle's market cap over the next two years.
Alibaba
Alibaba, China's largest e-commerce and cloud infrastructure company, suffered several major setbacks over the past four years. In 2021, China's antitrust regulators fined the company and barred its e-commerce business from locking in merchants with exclusive deals, using aggressive loss-leading promotions, and making unapproved acquisitions. Those restrictions eroded its defenses against its smaller e-commerce competitors.
China's sluggish recovery from the pandemic, which was exacerbated by the government's unpredictable "zero COVID" lockdowns, exacerbated that pressure by curbing consumer spending and driving businesses to rein in their cloud projects.
NYSE: BABA
Key Data Points
The escalating tech war between the U.S. and China also drove away some of Alibaba's multinational customers. That's why ByteDance's TikTok migrated the data of its U.S. users from Alibaba Cloud to Oracle's cloud platform in 2022.
Yet Alibaba, which is worth roughly $330 billion as of this writing, is still growing. From fiscal 2024 (which ended last March) to fiscal 2027, analysts expect its revenue and EPS to grow at a CAGR of 7% and 30%. That's an impressive growth rate for a stock that trades at 17 times forward earnings.
Alibaba is offsetting the slower growth of its Chinese marketplaces (Taobao and Tmall) by expanding its overseas and cross-border marketplaces, and it's rolling out new large language models (LLMs) to capitalize on the rapid growth of the AI market. Assuming Alibaba matches analysts' expectations and maintains the same forward valuations over the next two years, its stock price could more than double to $322 per ADR and boost its market cap to $730 billion.
Strategy
Strategy, formerly known as MicroStrategy, evolved from a slow-growth analytics software company into the world's largest corporate holder of Bitcoin (BTC 1.13%) over the past five years. As of March 16, it was holding 499,226 Bitcoins with an average purchase price of $66,360 per Bitcoin ($33.1 billion in total value). That stake is now worth $41.7 billion and accounts for over half of its market cap of $77.5 billion.
NASDAQ: MSTR
Key Data Points
Strategy's core software business, which generates most of its revenue, is barely growing. However, it's gradually expanding its cloud-based subscription services and rolling out new AI tools to offset the sluggish demand for its on-premise software.
For now, its software business's main job is to generate more cash for its Bitcoin purchases. It plans to raise $42 billion through 2027 with its "21/21 plan" of issuing $21 billion in fresh equity and $21 billion in fixed-income securities. That bold strategy will dilute its investors and boost its debt levels, but it expects Bitcoin's rising price to offset that pressure.
If Bitcoin's price surges over the next two years, Strategy's valuations will soar. The near-term forecasts for Bitcoin are all over the map, but a new report from the Journal of Risk and Financial Management claims its increasing scarcity will drive its price past $1 million by 2027. Strategy's chairman, Michael Saylor, claims its price will reach $13 million by 2045.
It's impossible to tell where Bitcoin will end up in 2027. But if its price surges to new all-time highs, Strategy's stock could generate big multibagger gains as it's valued by those crypto holdings instead of the anemic growth of its software business. Therefore, I believe Strategy could become more valuable than Oracle in a new Bitcoin bull market.
