Financial Report Preview | Cloud giant Oracle's performance heavyweight attack "AI Faith" sets off another wave?

According to the financial news app Zhitong Finance, the global technology giant Oracle (ORCL.US), renowned for its cloud computing services and database software, will release its fourth-quarter financial report for the 2024 fiscal year ending in May after the U.S. stock market closes on June 11 (early morning on June 12 Beijing time). Wall Street analysts generally expect that in this quarter ending in May, Oracle's adjusted earnings per share will decrease by 1% compared to the same period last year, to $1.65; total sales for the fourth quarter are expected to increase by 5.5% to $14.6 billion. This quarter marks the end of Oracle's fiscal year 2024. According to Oracle's previous performance report released in March, the company expects fourth-quarter sales to grow by about 5%.

Compared to semiconductor stocks that have been benefiting from the AI boom since 2023 and have had strong stock momentum, the current market trading environment is not favorable for software stocks, one of the types of stocks benefiting from the AI boom. This is mainly due to the high cost of purchasing AI hardware such as NVIDIA's AI GPU and the far less certain revenue prospects of AI software compared to AI GPU. However, Oracle's stock has performed strongly for most of this year, as Wall Street analysts increasingly believe that this 46-year-old company can leverage the fervent demand for artificial intelligence technology in global enterprise deployments to boost its cloud computing business and cloud data software revenue.

Riding on this unprecedented AI wave, Oracle's stock has risen by nearly 20% this year, significantly outperforming the S&P 500 index, and is currently making a push towards new highs, with a full-year stock price increase of over 30% in 2023. Amid the global trend of technology companies intensifying their deployment of generative AI technologies similar to ChatGPT, Oracle can be considered one of the biggest winners of this trend, with its global customer base for cloud computing infrastructure (IaaS) and cloud computing application software growing increasingly large.

NVIDIA, the "strongest shovel seller" in the AI field, has recently revitalized global tech stock investors' "AI faith" with its unparalleled strong performance, and the power of investors' faith in AI may continue to create huge waves in global stock markets. The impact of "AI faith" since 2024 on global stock markets, including the U.S. stock market, has arguably exceeded the impact of expectations of a Fed rate cut. Global tech stock investors are now eagerly awaiting Oracle's performance, mainly hoping that this financial report from the cloud computing leader Oracle can continue to fuel the strong bullish sentiment that has recently driven U.S. stocks higher, and are looking forward to Oracle's performance triggering another wave of bullish sentiment in global stock markets related to the "AI faith."

Oracle, a veteran tech giant and one of the big winners in the AI boom

Why has the 46-year-old veteran tech giant Oracle gained favor with a large number of investors in the secondary market? Mainly because the company's business has shifted entirely to the field of cloud computing in recent years, and the AI boom has helped drive a substantial increase in revenue in this field. The market is increasingly optimistic about the company's performance prospects in the AI era, thereby continuously driving up the valuation of this veteran tech giant Oracle, Google's Google Cloud Platform, Amazon AWS, and Microsoft Azure are all major global cloud computing service providers, offering one-stop cloud service deployment from IaaS to SaaS. Users can choose to deploy applications on the provided cloud infrastructure or use cloud platforms based on computing power to develop, deploy, and run applications such as generative AI. These companies have established large data center networks globally, allowing users to choose the nearest data center to host and process their data and applications.

The adoption prospects of artificial intelligence (AI) services provided by Oracle are very broad. In the third quarter (Oracle's first quarter of the 2024 fiscal year), the company was selected by the well-known AI startup MosaicML as the preferred cloud infrastructure (IaaS) partner for accelerating AI model training. In addition, as the demand for cloud services and AI services from customer groups continues to accelerate, Oracle has announced free training and certification programs.

Oracle's management continues to drive the strategic acceleration of Oracle's heavyweight products/services (such as Fusion, NetSuite, and MySQL) to the cloud computing platform, helping this veteran technology company achieve performance expansion in recent years. Looking at the revenue increment in the past year, the recent growth curve of Oracle's revenue scale largely indicates that Oracle's cloud computing-related services are benefiting significantly from the surge in demand for cloud computing services brought about by the global trend of deploying AI. The well-known research firm Wolfe Research once wrote in a report that the vigorous development of generative AI requiring strong cloud computing power and computing infrastructure may boost strong demand for Oracle's cloud computing services from global enterprises.

One of the Focus Points of Financial Reports: Outlook for the New Fiscal Year

Investors will closely watch the upcoming guidance range for Oracle's next fiscal year performance that the company's executives will release. Oracle CEO Safra Catz usually provides analysts with the latest performance outlook during the earnings conference call.

Barclays analyst Raimo Lenschow wrote in a client report on Monday, "For us, Oracle remains a very important large-cap stock in the software sector, as the company is expected to continue benefiting from further adoption of artificial intelligence. It is one of the few suppliers with a modern and complete cloud computing platform and will benefit from increased AI capacity." "In the fourth quarter, the market will only see a small part of the reaction, which means that the stock price reaction may depend more on the 2025 fiscal year performance guidance than the printed performance."

Barclays rates Oracle's stock as "Overweight" with a target price of $147 (Oracle's stock closed at $124.81 last week). The firm's analysis team expects Oracle's sales for the next fiscal year (ending in May 2025) to grow by 8.5% to $57.8 billion However, Barclays analyst Lawrence Kuo pointed out that Oracle may need higher numbers to achieve the long-term sales target of $65 billion in the 2026 fiscal year. Oracle CEO Katz reiterated this long-term performance target in a conference call with analysts in March.

Cloud Infrastructure Business Attracts Attention

Oracle is undergoing a long and occasionally bumpy transition from a local software provider to a subscription-based cloud computing giant. At the core of this effort is Oracle's Cloud Infrastructure business (OCI). OCI provides other enterprises with data center core servers, storage systems, and other computational services based on cloud computing technology.

Oracle is seeking to compete fiercely in this area with market leaders Amazon and Microsoft. This business is also crucial for Oracle to benefit from the development iterations of artificial intelligence. The company has been purchasing AI chips from NVIDIA to rent out AI server computing power to other enterprises seeking the massive cloud computing capacity required for AI algorithm engineering.

Oracle stated that in the quarter ending in February, its cloud infrastructure business revenue increased by 49% year-on-year to $1.9 billion. The company's sales in the quarter ending in November of last year increased by 52% year-on-year, by 66% in the quarter ending in August, and by 76% in the quarter ending in May 2023.

Analyst John DiFucci from investment firm Guggenheim wrote on Monday that he believes Oracle's cloud infrastructure business (OCI) revenue in the quarter ending in May can achieve at least a 50% year-on-year growth expectation. Guggenheim rates Oracle's stock as "Buy."

As of the end of February, Oracle stated that driven by demand for AI-related cloud services, the remaining performance obligation value exceeds $80 billion. Investors are discussing how fast Oracle can build AI data centers to meet global computing demands.

Guggenheim analyst DiFucci wrote in a report to clients, "Our feeling is that many investors still doubt Oracle's success in OCI, but in our view, the question is when they can recognize the large backlog of deals, not whether they can."

Recent Sharp Decline in US Software Stocks

At the time of Oracle's performance announcement, software stocks are going through a tough period. At the end of last month, a series of software companies, including industry leaders like Salesforce (CRM.US), Workday (WDAY.US), and database competitor MongoDB (MDB.US), saw a significant drop in stock prices after releasing disappointing performance reports.

These software giants, in order to seize the AI boom, have been investing heavily in purchasing expensive AI hardware devices such as NVIDIA AI GPUs, causing concerns in the market that their large expenditure scale may not show a positive correlation with AI software revenue in the short term In the last week of May, Oracle's stock price fell along with these stocks. However, Oracle's stock price quickly rebounded and recovered the previous week's decline, with a cumulative weekly increase of 7.5% as of June 7th. The year-to-date increase far exceeds the 12% increase of the S&P 500 index. Oracle's stock price had surged significantly after announcing better-than-expected third-quarter financial results in March.

Prior to the report's release, according to MarketSurge's statistical data, Oracle's stock had formed a "cup pattern," with a potential buying point near $132.77. The stock's IBD composite rating is 83 out of 99. Wall Street analysts are also optimistic about Oracle's future stock price performance, with an average target price of $140, implying a potential upside of nearly 12%, and the most optimistic target price reaching $160