The New York Stock Exchange celebrated a significant moment as Oracle took the podium on July 12, 2023. Analysts’ reactions to the software vendor’s latest quarterly earnings call reflected a sense of astonishment. John DiFucci from Guggenheim Securities expressed that he was “blown away,” while TD Cowen’s Derrick Wood referred to the results as a “momentous quarter.” Brad Zelnick of Deutsche Bank added to the excitement, stating, “We’re all kind of in shock, in a very good way.” This enthusiasm came despite the company reporting a miss in both earnings and revenue, prompting a remarkable 28% rally in Oracle’s stock during after-hours trading.
Wall Street’s attention shifted away from the reported figures and instead focused on Oracle’s optimistic forward-looking numbers, bolstered by an expanding cloud infrastructure business and a series of new artificial intelligence contracts. Zelnick remarked, “There’s no better evidence of a seismic shift happening in computing than these results.”
Typically, analysts shower praise on companies with positive earnings reports, but the response to this Oracle call was unique. The stock’s after-market surge put it on track to see its biggest single-day gain since the dot-com boom in 1999, with shares trading at $310 in extended hours. This spike would elevate Oracle’s stock beyond its prior record close of $256.43, achieved the previous month, potentially boosting the company’s market capitalization to over $870 billion.
A major component of the excitement surrounds Oracle’s cloud infrastructure sector, which competes directly against giants like Amazon, Microsoft, and Google. The company forecasted a remarkable 77% revenue increase in this segment, projecting growth from $10 billion the previous year to $18 billion in the current fiscal year. By fiscal 2027, Oracle anticipates revenues will nearly double to $32 billion, with projections reaching $73 billion, $114 billion, and ultimately $144 billion in subsequent years.
CEO Safra Catz highlighted the company’s success in securing four multibillion-dollar contracts with three different clients within the quarter. Notably, OpenAI announced plans to develop 4.5 gigawatts of U.S. data center capacity in partnership with Oracle.
The company’s remaining performance obligations (RPO), a key indicator of contracted revenue yet to be recognized, surged to $455 billion—a staggering 359% increase year-on-year. Wood described the RPO figure as “just really amazing to see” and sought insights from Catz regarding infrastructure development costs. Catz elaborated on Oracle’s strategy, differentiating their approach by focusing on technology rather than owning physical data center properties, which some competitors prefer.
The positive guidance prompted many analysts to adjust their estimates for Oracle, with Bank of America upgrading the stock to a buy rating and predicting over 50% upside from the prior day’s close. D.A. Davidson analyst Gil Luria highlighted the projected cloud revenue as “absolutely staggering,” indicating a potential tenfold growth over five years. However, Luria noted a cautionary point: the influx of customers coming from companies like Microsoft and Google, which have begun offloading their capacity to other data center providers, facilitating a transition of these clients to Oracle.
Leading up to the earnings report, Oracle’s stock was already performing well, having gained 46% over the year compared to the Nasdaq’s 13% increase. The current momentum suggests a robust confidence in Oracle’s future as it positions itself to capitalize on the evolving technological landscape.
