Oracle's AI Demand Fuels Record Sales, Mizuho Analyst Upgrades Price Target

Mizuho's Siti Panigrahi raised their price target on Oracle (NYSE: ORCL) by 6.3% from $160 to $170 on June 17, 2024. The analyst reiterated their Strong Buy rating on the stock. Panigrahi's price target hike followed an assessment of Oracle's fourth-quarter and fiscal year 2024 earnings report, which was released on June 11, 2024. The analyst believes that Oracle's management's forecasts for fiscal year 2026 are "conservative," especially considering the demand for Oracle Cloud Infrastructure (OCI) and the company's ongoing expansion of data center and AI capacities.

In the fourth quarter of 2024, Oracle reported earnings per share (EPS) of $1.63, missing the Zacks Consensus Estimate by 1.83% and falling short of the previous year's EPS of $1.67 by 2.4%. However, the company's revenue of $14.28 billion exceeded the Zacks Consensus Estimate by 0.61% and surpassed the revenue of the fourth quarter of 2023 by 3.3%.

Oracle's cloud revenue (combining Infrastructure-as-a-Service and Software-as-a-Service) reached $5.3 billion in the fourth quarter, marking a 20% year-over-year increase. For the full fiscal year 2024, Oracle reported an EPS of $5.56, representing an 8.6% growth compared to the previous year's EPS of $5.12. The company's revenue for fiscal year 2024 amounted to $52.96 billion, up 6% from the previous year's revenue of $49.95 billion.

Looking ahead, Oracle's management provided guidance for the first quarter of 2025. They expect an EPS of $1.31 to $1.35, indicating a year-over-year growth rate of 10% to 14%. The company also anticipates a 6% to 8% revenue growth and a 20% to 22% increase in cloud revenue (or 21% to 23% in constant currency). Furthermore, for fiscal year 2025, Oracle aims to achieve faster growth in its cloud infrastructure services compared to the 50% growth reported in fiscal year 2024, while doubling its capital expenditures (Capex) compared to fiscal year 2024.

CEO Safra Catz expressed optimism about Oracle's future, stating, "Throughout fiscal year 2025, I expect continued strong AI demand to push Oracle sales and RPO even higher—and result in double-digit revenue growth this fiscal year." Catz also highlighted the company's success in securing significant sales contracts in the fourth quarter, including a deal with Open AI to train ChatGPT in the Oracle Cloud.

Chairman and CTO Larry Ellison emphasized the expansion of Oracle's multi-cloud cooperation with Microsoft, which involved the launch of 11 out of the 23 OCI data centers within Azure. Ellison believes that this collaboration will accelerate Oracle's cloud database growth, enabling customers to utilize various versions of the Oracle database in both the Azure and Oracle Clouds. Additionally, Oracle has established a cloud interconnection agreement with Google, planning to build 12 OCI data centers inside the Google Cloud and make the Oracle database available within the Google Cloud by September of this year.

In addition to Mizuho's Siti Panigrahi, other analysts also updated their ratings on Oracle on June 17, 2024. BMO Capital's Keith Bachman raised their price target by 12.7% from $142 to $160 while maintaining a Hold rating on the stock. Deutsche Bank's Brad Zelnick increased their price target by 10% from $150 to $165 and maintained a Strong Buy rating on the stock.

According to data from WallStreetZen, 56.3% of top-rated analysts currently rate Oracle as a Strong Buy or Buy, while 43.8% consider it a Hold. No analysts recommend or strongly recommend selling the stock. The consensus forecast among analysts suggests that Oracle's upcoming year will deliver an EPS of $4.6. If the analysts' predictions hold true, this would represent an 18.3% increase in yearly EPS compared to the previous year.

Since the release of Oracle's latest quarterly report on June 11, 2024, the stock price has risen by 14.1%. Over the course of the year, Oracle's stock has increased by 15.8%. However, during this period, Oracle has trailed behind the performance of the S&P 500, which has seen a growth rate of 24.7%.

Oracle Corporation, headquartered in Austin, TX, offers a range of software, hardware, and cloud infrastructure solutions. The company markets its products through independent software and hardware vendors, system integrators, and resellers. Established in 1977, Oracle has become a prominent player in the technology industry, specializing in database and middleware software, application software, and hardware systems.

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