Following a difficult start to the year, Oracle (ORCL 0.67%) stock has been resurgent in recent weeks, rising nearly 35% since April 21 amid the broader recovery in technology stocks. Over the same period, the Nasdaq Composite index recorded an 22% gain.
The database and cloud infrastructure provider is expected to table its fiscal 2025 fourth-quarter results in mid-June. That report could give its recent rally a nice boost.
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Oracle's growth rate is set to improve at a healthy clip
Oracle stock took a hit earlier this year after its fiscal Q3 results and fiscal Q4 guidance missed analysts' expectations. The company is expecting its top line to increase by 9% in fiscal Q4. Its overall revenue for fiscal 2025 is expected to grow by 8% to just over $57 billion.
NYSE: ORCL
Key Data Points
However, investors can expect a significant acceleration in Oracle's growth beginning in fiscal 2026 thanks to the terrific demand for the company's cloud infrastructure, which is being used by customers for both artificial intelligence (AI) training and inference. Oracle claims that its cloud infrastructure is faster and cheaper than rivals, and the high-speed networking capability of that infrastructure makes the company's platform ideal for tackling AI workloads.
This explains why the demand for Oracle Cloud Infrastructure (OCI) is "dramatically" exceeding supply, according to CEO Safra Catz. Although the company has just a 3% market share in the global cloud market, the company is touting its 51% growth in OCI revenue in fiscal Q3, which Catz points out was "a much higher growth rate than any of our hyperscaler competitors."
As a result, the company has been investing aggressively to boost its cloud infrastructure capacity so that it can meet the increasing demand for AI workloads from existing customers, while also catering to the new customers that are migrating to its platform in hopes of increasing its market share.
In March, management said it expected Oracle's capital expenditures for fiscal 2025 would be about $16 billion, more than double its capex in fiscal 2024. That massive increase is justified by the rate at which Oracle is signing new cloud contracts. The company's remaining performance obligation -- the total value of contracts it has signed, but has yet to fulfill -- increased an impressive 63% year over year to $130 billion at the end of Q3.
What's worth noting is that Oracle's remaining performance obligation increased by 53% and 50%, respectively, in the first two quarters of the fiscal year. So, the adoption of its cloud platform increased at a solid pace, and its massive revenue pipeline justifies the aggressive capacity investments it's making. The good part is that Oracle's remaining performance obligation doesn't yet include any contracts from the Stargate project, the $500 billion AI infrastructure venture led by OpenAI and SoftBank.
In March, Oracle Chairman Larry Ellison said that spending on the Stargate project would boost the company's remaining performance obligation even higher in the next few quarters. There is a good chance that the contracts Ellison was predicting could start materializing when the company releases its next set of results next month. The company reportedly placed orders for $40 billion worth of Nvidia's AI graphics cards for a Stargate data center in Texas.
Additionally, Oracle is set to develop an AI data center in the United Arab Emirates as part of the Stargate project. Given that OpenAI is considering the deployment of AI data centers in 16 U.S. states under Stargate, and that Oracle is a "key initial technology partner" in the project, it won't be surprising to see Oracle's revenue pipeline improving further.
All of this helps explain why Oracle has forecast that its revenue will increase by 15% in the new fiscal year, followed by an increase of 20% in the 2027 fiscal year. Moreover, the company believes that the component delays slowing down its cloud capacity expansion will ease in the current quarter, which could allow it to deliver better-than-expected guidance and send the stock even higher.
Why it makes sense to buy the stock before its quarterly results
Though Oracle stock rallied in recent weeks, it is still trading at an attractive 23 times forward earnings. That's lower than the tech-heavy Nasdaq-100 index's forward earnings multiple of 27.5.
We have already seen that Oracle is expecting much stronger top-line growth over the next couple of fiscal years. That's expected to translate into stronger earnings growth as well compared to the 8% projected increase in its bottom line in fiscal 2025 to $6 per share.
ORCL EPS Estimates for Current Fiscal Year data by YCharts.
If Oracle's annual earnings do reach $8.18 per share after a couple of years and it trades in line with the Nasdaq-100 index's current forward earnings multiple at that time, its stock price could hit $225. That would be a 39% jump from today's levels. However, this AI stock could end up delivering much stronger gains since it has the potential for even stronger earnings growth, which could lead the market to reward it with a richer valuation. That's why it may be a good idea to invest in Oracle stock now, while it's still trading at attractive levels.
