Oracle Stock: Can Software Giant Challenge Cloud Dominance Of Amazon, Microsoft, Google?

The cloud-computing era for enterprise tech has been dominated by a “Big Three” of tech giants: Amazon (AMZN), Microsoft (MSFT) and Google parent company Alphabet (GOOGL). Now, Oracle (ORCL) may be poised to join the party.

With AI demand supercharging growth for Oracle’s cloud business, some stock analysts predict that the database tech stalwart will soon disrupt the status quo. In other words, Oracle could become the fourth cloud giant.

Oracle stock posted its best single-day this century on Sept. 10, a day after reporting its fiscal Q1 results. The Austin, Texas-based tech giant offered eye-popping projections for its future revenue growth. Chief Executive Safra Catz projects the company’s Oracle Cloud Infrastructure business to grow 77% to $18 billion this fiscal year and reach $144 billion by its fiscal 2030. Oracle reported $57.4 billion in sales for its entire business in its most recent fiscal year.

The surge for Oracle stock put an exclamation point to growing excitement for the stock and the company’s cloud push. Last year, Oracle stock gained more than 60% for its best performance since 1999. Shares rallied as Oracle’s newer cloud offering and array of Nvidia (NVDA) processors helped it attract top AI startups hungry for cloud-based firepower to train their algorithms.

“Oracle has become the go-to place for AI workloads,” Catz told analysts on a conference call following Oracle’s report.

Oracle reeled in work from one of the biggest fishes out there in OpenAI. The ChatGPT creator signed a five-year deal with Oracle valued at $300 billion for cloud computing services, according to a Wall Street Journal report on Sept. 10. That deal is contributing to remaining performance obligations of $455 billion as of August, a 359% jump from a year earlier.

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Oracle’s Total Share Of Cloud Market

It is a striking shift in the 48-year-old company’s story.

As Amazon Web Services soared to prominence renting computer servers to enterprises in the early 2000s, Oracle Chairman Larry Ellison was initially dismissive of the term cloud-computing. Oracle was seen as a latecomer to the technology.

The current, second generation of Oracle Cloud Infrastructure launched in 2016. By then, Amazon Web Services, Microsoft Azure and Google Cloud were firmly established as what analysts call the big three cloud-service providers.

That still remains the case. Of the $95.4 billion spent on cloud infrastructure globally from June through August, an estimated 65% went to cloud computing’s big three, according to the research firm Canalys. The remaining 35% was categorized as “Other.”

Some analysts see Oracle as primed to breakout from that “other” category.

Jefferies analyst Brent Thill projects Oracle’s share of hyperscaler cloud revenue will rise from 5% at the end of its May-ending fiscal 2026 to 17% by its fiscal 2030. By then, Thill projects Microsoft’s market share will hold steady at its current 30%, while Amazon slips to 33% of the market and Google falls slightly to 19%.

Oracle’s “share gains in the AI era are clear,” Thill wrote in a recent client note. He rates Oracle stock a buy.

He pointed to Oracle’s RPO of $455 billion compared to estimated RPO of $368 billion at Microsoft, $195 billion at Amazon and $108 billion at Google, based on Jefferies estimates and reported company data.

Oracle’s Cost Advantage

Bernstein analyst Mark Moerdler is also bullish. He estimates that Oracle holds about 5% market share in the most recent quarter and expects its share to approach that of Google’s by the end of the decade.

“The Oracle story has shifted relatively quickly from a potential cloud and hyperscaler story to a major hyperscaler and AI training/inferencing provider,” Moerdler wrote in a recent note to clients.

Arriving late to the cloud may now be playing to Oracle’s advantage. Cloud cost comparisons can be tricky but Ellison and Catz have described Oracle’s cloud as more flexible and cost-efficient.

Oracle Cloud “has extremely special networking capabilities,” Catz told analysts earlier this month. “It has technical capabilities from Larry and his team that allows us to run these workloads much, much faster. And as a result, it’s much cheaper than our competitors.”

At Bernstein, Moerdler noted that Oracle has also had success in winning cloud contract beyond AI training. That includes deals with TikTok, Temu and Uber Technologies (UBER).

“OCI Gen 2 is technologically different from AWS, Azure and (Google Cloud) and that difference is allowing Oracle to win in subsets of the market that are not well served by their bigger competitors,” Moerdler wrote.

How Costs Could Hurt Oracle Stock

Still, many questions remain about the sustainability of Oracle stock’s massive AI-fueled rally. Thill said the “elephant in the room” is how much of Oracle’s backlog growth is dedicated to OpenAI.

OpenAI largely trains its algorithms with Microsoft, which is also a primary investor in the startup. But with cloud resources in extreme demand, OpenAI this year reached an agreement allowing it to seek excess cloud capacity through other providers.

But the massive deal makes Oracle’s fortunes at least somewhat entangled with OpenAI’s ability to continue scaling its hit ChatGPT product and the start-up’s ability to raise more funding from investors.

Another major question amid the excitement is how Oracle will fund the data center expansion needed to meet its current backlog. Jefferies estimates that Oracle’s capital expenditures will reach $32 billion this calendar year, a 194% year-over-year jump. Amazon, Microsoft and Google are also scaling up their investments to chase the AI opportunity. But they have much larger overall businesses.

“The glaring negative with this spectacular growth is that Oracle needs to boost capital spending to satisfy the seemingly insatiable demand,” Gimme Credit analyst Dave Novosel said in a recent analyst note.

He expects the company will need as much as $13 billion in debt over the next “few quarters.”

“Yet we still forecast a decline in leverage because of the considerably higher EBITDA,” Novosel wrote, referring to earnings before interest, taxes, depreciation and amortization. “That stems from tremendous revenue growth and an improvement in operating margins.”

Oracle Stock Ahead 81% This Year

With its huge gain earlier this month, Oracle is on pace to surpass last year’s gain to post its best price performance this century. Oracle stock has gained 81% year-to-date.

Shares of the tech giant got a slight boost earlier this week on news that a sale of TikTok’s U.S. operations is near. Oracle is expected to be involved in the deal, which will shift control of the hit video app to a group of U.S. investors.

The next catalyst for Oracle stock could come next month. Analysts expect the company will further detail its growth expectations at its “AI World” customer conference, which starts Oct. 13. The event has been renamed from the former Oracle Cloud World.

Meanwhile, Oracle stock has an IBD Composite Rating of 94 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one easy-to-use rating.

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