April 21, 2024

Oracle Corporation has reported better-than-expected quarterly profits, driven by the surging demand for generative artificial intelligence (AI) services. The 46-year-old database giant’s shares surged nearly 14% in extended trading following the announcement, adding more than $40 billion to its market capitalisation. 

The late-day rally shows the growing investor enthusiasm for companies positioned to capitalise on the AI revolution.

Reinventing as a Cloud Computing Provider

In recent years, Oracle has been working to reinvent itself as a cloud computing provider, offering services at lower prices than its rivals, such as Amazon.com. 

The company has pursued strategic partnerships with tech giants like Microsoft and Nvidia, the leading AI chip maker, to bolster its cloud offerings and cater to the growing demand for AI-powered services.

Oracle’s CEO, Safra Catz, highlighted the company’s efforts to meet the rising demand for its Gen2 AI infrastructure. 

He stated,

We expect to continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supply.

He also added that despite the great demand, the company would be opening and expanding existing cloud data centres rapidly. During the earnings call, Oracle executives repeatedly mentioned Nvidia, hinting at a forthcoming joint announcement between the two companies. 

Notably, Nvidia’s cutting-edge AI chips are essential for powering supercomputers and cloud-based AI services. This makes the partnership a strategic move for Oracle as it aims to capitalize on the generative AI boom.

By leveraging Nvidia’s expertise in AI hardware, Oracle can enhance its cloud offerings and better cater to the increasing demand for AI-powered services from its customers. This collaboration between Oracle and Nvidia shows the importance of strategic partnerships in the rapidly evolving AI industry. 

Financial Highlights and Outlook

In the third quarter, which ended February 29, Oracle reported adjusted earnings of $1.41 per share, surpassing analysts’ estimates of $1.38 per share and representing a 16% year-over-year increase. 

However, the company’s revenue of $13.28 billion fell slightly short of the average analyst estimate of $13.30 billion.

Despite the revenue miss, Oracle’s Remaining Performance Obligations (RPO) – a key metric that measures booked revenue – grew by an impressive 29% compared to the previous year

This strong RPO growth bodes well for the company’s future results, as it indicates a healthy pipeline of future revenue streams.

Looking ahead, Oracle provided revenue growth guidance for the current quarter in the range of 4% to 6%, which fell short of analysts’ average estimate of around 6.5%. Nevertheless, the company’s strong performance in the face of AI tailwinds has buoyed investor confidence, as reflected in the surge in Oracle’s stock price.

As the AI revolution continues to gain momentum, Oracle’s strategic partnerships, cloud computing offerings, and efforts to meet the growing demand for AI infrastructure position it as a potential beneficiary of this transformative technology. 

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