Numerous tech companies, including every member of the "Magnificent Seven," have invested heavily in artificial intelligence (AI) in recent years. However, investors have tended to focus on the clearest leaders in the AI space, such as Nvidia and Palantir.
So it may surprise some investors that Oracle (ORCL 3.88%) has emerged as a surprise contender. Historically known for its relational database products, it has more recently leveraged its data center infrastructure to take a meaningful role in the AI sector. The question now is whether Oracle is emerging as a dark horse leader in the enterprise AI cloud business, or whether it is merely enjoying a moment in the sun before the competition in AI intensifies.
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Oracle's AI advantages
Oracle's database business left it with an extensive data center footprint, and it has used this to compete in the cloud through its Oracle Cloud Infrastructure (OCI) suite. Since rolling out this offering almost a decade ago, Oracle has become the fifth-largest cloud infrastructure service provider. Still, with a 3% market share, this pivot drew relatively little attention initially.
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Nonetheless, Grand View Research projects a 20% compound annual growth rate for the cloud industry through 2030. It expects the industry's size, which was $752 billion in 2024, to balloon to almost $2.4 trillion by 2030. That expanding pie should benefit all the competitors in the space, including Oracle Cloud Infrastructure.
Moreover, Oracle's approach enabled it to lower costs. Its multicloud data centers are designed specifically to power high-performance computing workloads, giving Oracle an edge over other cloud providers. It is currently live in 18 cloud regions with database-at-cloud services, with an additional 40 in the works.
Additionally, its stock spiked by 36% on Sept. 10 after it and OpenAI announced a massive five-year $300 billion cloud deal that will enhance its position among the top cloud providers. That agreement, along with other cloud deals, left it with a staggering $455 billion backlog.
Given that deal volume, one might assume Oracle will continue to stand out, and that investors will want to own its stock despite its somewhat elevated P/E ratio of 55.
NYSE: ORCL
Key Data Points
Recent struggles
Unfortunately, Oracle's stock has cooled off since the surge it experienced after announcing this deal. While such declines are not unusual in the current environment, its stock has fallen back to around where it traded right before news of the OpenAI deal was made public two months ago.
Moreover, there are clear indications that the enterprise AI cloud race is far from over.
Oracle has ramped up capital expenditures. In the first quarter of its fiscal 2026 (which ended Aug. 31), it spent a little over $27 billion in capex, equivalent to almost $110 billion on an annualized basis. In the prior-year quarter, its capex budget was less than $8 billion.
Meanwhile, its competition is also investing heavily in AI. Google parent Alphabet has spent nearly $74 billion over the trailing 12 months and has vowed to further increase its capex. Amazon spent $120 billion over the same period.
Then there are cloud companies like CoreWeave, which have designed their data centers specifically for AI. Such competitive threats indicate Oracle will have to keep investing heavily to stay competitive.
Competition is fierce in the enterprise AI cloud space
Given the current competitive landscape, it is unclear whether Oracle is a dark horse contender in the enterprise AI cloud.
Admittedly, its data center footprint and dealmaking volume have forced the rest of the industry to acknowledge Oracle as a competitive threat. Its recent increases in capex spending and its massive backlog show that Oracle is a top player in the cloud and AI industries.
Nonetheless, other top cloud companies, such as Alphabet and Amazon, have also ramped up capex spending, and the rapidly rising demand for cloud services will bring growth to players across the board. Such conditions do not guarantee that Oracle will remain competitive.
Given the industry's growth outlook and the heavy investments being made to support AI, Oracle should continue to deliver for shareholders. However, it will have to continue working hard to stay ahead if it wants to keep succeeding long term.
