The advent of modern cloud computing is largely attributed to Amazon, which pioneered cloud infrastructure services with the introduction of Amazon Web Services (AWS) in 2002. The industry has evolved over time, but the basics remain the same: Providers offer on-demand, scalable computing, software, data storage, and networking capabilities to any business with an internet connection.
After a period of slower growth, the cloud infrastructure space got a jump start thanks to recent developments in the field of artificial intelligence (AI). However, the large language models that underpin the technology require a great deal of computational horsepower, which typically isn't available outside a data center. As a result, the demand for cloud infrastructure services has skyrocketed in recent years, and it's expected only to grow from here.
Recent developments suggest there could be a big shakeup coming to the cloud infrastructure space, led by technology stalwart Oracle (ORCL -0.32%).
Image source: Getty Images.
Skyrocketing demand for Oracle Cloud
While the company is primarily known for its flagship Oracle Database, it offers customers a growing suite of enterprise software, integrated cloud applications, and cloud infrastructure services.
Oracle Cloud Infrastructure (OCI) has long trailed the Big Three cloud providers. To close out the calendar second quarter, AWS, Microsoft Azure, and Alphabet's Google Cloud controlled 30%, 20%, and 13% of the market, respectively, according to data compiled by Statista. Oracle ran a distant fifth with 3% of the market.
Yet, recent developments suggest a paradigm shift in the status quo. When Oracle released the results of its fiscal 2026 first quarter (ended Aug. 31), the headline numbers were largely business as usual. Total revenue grew 11% year over year to $14.9 billion, while its adjusted earnings per share (EPS) of $1.47 grew 6%.
However, investors were taken aback by the magnitude of Oracle's backlog, as its remaining performance obligation (RPO) -- or contractual obligations not yet included in revenue -- surged 359% year over year to $455 billion. Perhaps more impressive is the $317 billion in contracts signed during the first quarter alone.
Oracle's position as a trusted partner to enterprise made it "the go-to place for AI workloads," according to CEO Safra Catz. If that wasn't enough, she went on to say, "We expect to sign-up several additional multi-billion-dollar customers and RPO is likely to exceed half-a-trillion dollars."
Breaking down that backlog shows that Oracle will be reaping the benefit of those deals for years to come:
- Fiscal 2026 cloud revenue of $18 billion, up 77%
- Fiscal 2027 cloud revenue of $32 billion, up 78%
- Fiscal 2028 cloud revenue of $73 billion, up 128%
- Fiscal 2029 cloud revenue of $114 billion, up 56%
- Fiscal 2030 cloud revenue of $144 billion, up 26%
The company notes that the majority of the revenue in this outlook is already booked in RPO, so there are contracts backing these forecasts. If Oracle is able to reach these lofty benchmarks, and that's still a big if, OCI will join the big leagues of cloud infrastructure and could potentially unseat one or more of the Big Three.
A changing of the guard?
As previously stated, Amazon, Microsoft, and Google top the list of cloud infrastructure providers, so it helps to see where they stand. During the first six months of 2025, AWS generated revenue of $60.1 billion, up 17%, suggesting a run rate of $120 billion. During the same period, Google Cloud's revenue came in at $25.9 billion, up 30%, suggesting a run rate of about $51.8 billion. Microsoft doesn't generally break out Azure's revenue, but it recently revealed that for fiscal 2025 (ended June 30), Azure surpassed $75 billion in revenue, up 34%.
Given the limitations, this is obviously not an apples-to-apples comparison, but it provides us with a starting point. Taking these extrapolated figures and applying their most recent growth rates over the coming four years, here's where the Big Three would stand by the end of calendar 2029 compared to Oracle:
- AWS: $225 billion
- Azure: $241 billion
- Google Cloud: $157 billion
- Oracle: $144 billion
Using our imperfect information and assuming Oracle can turn its RPO into cloud revenue, this exercise shows a path for OCI to mount a challenge to the Big Three over the next five years.
To be clear, this is fun with numbers, and life doesn't occur in a vacuum. All of our cloud infrastructure providers will likely grow more quickly or more slowly than our examples suggest. One of the upstart neocloud providers could capture an outsize portion of the market. There are plenty of other examples of what could go very right or very wrong, but you get the idea.
To buy or not to buy?
The recent surge in Oracle's stock price has had a commensurate impact on its valuation, which appears lofty at first glance. The stock is selling for 38 times next year's earnings, which is certainly a premium. However, using the more appropriate forward price/earnings-to-growth (PEG) ratio, which accounts for the company's growth trajectory, the multiple comes in at 0.8, when any number less than 1 is the standard for an undervalued stock.
