ii view: Oracle bounces on reassuring growth potential

Third-quarter results to 28 February  

• Revenue up 22% to $17.2 billion
• Adjusted earnings up 21% to $1.79 per share

ii round-up:

Cloud computing giant Oracle Corp (NYSE:ORCL) moved to reassure investors regarding growth prospects, delivering forecast-busting earnings as well as raising forward sales guidance. 

Third-quarter revenues to late February rose 22% to $17.2 billion, pushing adjusted earnings up by a similar amount to $1.79 per share. Analyst had expected outcomes of $16.9 billion and $1.70 per share respectively. Full year 2027 revenue is now expected to hit $90 billion, up from a previous $89 billion estimate and higher than the $67 billion expected in 2026.  

Shares in the S&P 500 company rose 11% in US trading having come into this latest news down by close to a quarter so far in 2026. That’s similar to software provider Salesforce Inc (NYSE:CRM) year-to-date, hit by concerns regarding the future impact of AI on its products. The S&P 500 index is down almost 1% year-to-date. 

As well as being a major database software provider, Oracle has been investing heavily in expanding its network of data centres from which other companies can host their own AI software.

Customers using the company’s hosting facilities include Air France KLM, Lockheed Martin and Louis Vuitton.  

Oracle continues to forecast capital expenditure of $50 billion this current financial year, in line with recently announced plans to raise up to $50 billion via the bond markets. It's already raised $30 billion. 

Remaining Performance Obligations (RPO), a measure of contracted revenues that have not yet been recognised, rose by $29 billion from the previous quarter to a total of $553 billion.

Management flagged a restructuring of its product development teams into smaller teams, a move being made given the increasing efficiency of AI in generating software code.  

Fourth-quarter and full-year results are likely to be announced mid-June. 

ii view:

Started in 1977, Oracle pioneered the first Structured Query Language (SQL) database. Its more than 400,000 customers include easyJet, Paramount and BNP Paribas. Data hosting or Cloud related revenues generated 52% of sales during this latest quarter, followed by software sales at 36%, service sales 8% and hardware related sales at 4%. 

For investors, expected full-year capital expenditure of $50 billion now needs to be justified by returns and growing profits. A fiercely competitive sector includes players such as Amazon.com Inc (NASDAQ:AMZN) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL). A forecast price/earnings (PE) ratio above the 10-year average may suggest the shares are not obviously cheap, while a forecast dividend yield of just over 1% compares to more than 2% at rival International Business Machines Corp (NYSE:IBM). 

More favourably, an RPO of $553 billion now underpins future revenues, with Oracle’s renowned database a major attraction for customers in hosting their AI software at Oracle facilities. A partnership with the US government is now underway following previously announced plans by President Trump to invest billions of dollars in American AI infrastructure. A wide diversity of both customer types and geographical location exists, while growth by acquisition over time has been successfully achieved by the Texas headquartered company. 

On balance, and while risks remain, Oracle’s ambition to be one of the world’s largest cloud infrastructure companies continues to be supported by its much-used database software, giving some grounds for optimism.      

Positives: 

• Product and customer sector diversity
• Successful acquisition track record

Negatives:

• Society concerns for AI use
• Currency moves can impact

The average rating of stock market analysts:

Buy