Oracle's Cloud Surge and Undervalued Dividend Play: Why ORCL Outshines AI Hype

Oracle Corporation (ORCL) has quietly transformed itself into a cloud juggernaut, delivering Q4 fiscal 2025 results that underscore its dominance in infrastructure-as-a-service (IaaS). With IaaS revenue soaring 52% year-over-year to $3.0 billion and remaining performance obligations (RPO) surging 41% to $138 billion, Oracle is now positioned to capitalize on the AI boom while offering a safer, higher-return alternative to volatile AI stocks. Despite skepticism from hedge funds like Carillon Tower, which prioritize pure-play AI names, Oracle's structural cloud momentum, dividend yield, and fortress-like balance sheet make it a compelling buy ahead of FY2026.

The Cloud Growth Engine: Numbers That Can't Be Ignored

Oracle's Q4 results were a masterclass in execution. Total cloud revenue (IaaS + SaaS) rose 27% to $6.7 billion, representing 42% of total revenue. But the real headline is IaaS: its 52% growth outpaces rivals like AWS (which reported 16% growth in its infrastructure segment) and signals a strategic pivot to the high-margin, AI-powered future of computing. CEO Safra Catz's FY2026 guidance is audacious yet credible—she forecasts IaaS growth exceeding 70% and total cloud revenue growth surpassing 40%.

The RPO metric, which tracks contracted but unearned revenue, is a critical validator. At $138 billion, Oracle's RPO has now eclipsed its market cap, a rare feat for a tech giant. This “future revenue runway” is growing faster than its stock price, implying upside potential.

Why Carillon's Skepticism Misses the Mark

Hedge funds like Carillon Tower have criticized Oracle for lagging behind AI stocks in terms of growth velocity and market enthusiasm. Their Q1 2025 letter highlighted Oracle's “modest revenue growth” relative to AI names and its 27th ranking among hedge fund favorites. But this overlooks three key factors:

1. AI Dependency vs. Infrastructure Leadership: Oracle isn't just riding the AI wave—it's building the infrastructure that powers it. Partnerships with Meta and Elon Musk's xAI, combined with its 104% year-over-year growth in Cloud@Customer data centers, position it as the backbone of AI's computational needs.
2. Dividend Yield and Stability: Oracle's 1.6% dividend yield may seem modest, but it's a lifeline in a market where AI stocks often lack income. With $20.8 billion in operating cash flow (up 12% year-over-year), Oracle can fund growth while rewarding shareholders.
3. Valuation vs. Growth: Oracle trades at just 18x forward earnings, far below AI darlings like NVIDIA (38x) or Palantir (52x). Even with Safra Catz's aggressive guidance, the stock remains undervalued relative to its cash flow and RPO trajectory.

The Case for ORCL as the “Safe” High-ROI Play

While AI stocks like NVIDIA or C3.ai have delivered eye-popping returns, their valuations and execution risks are enormous. Oracle offers a rare blend of:
- Proven Cloud Growth: Its MultiCloud database revenue jumped 115% quarter-over-quarter, proving it can innovate without sacrificing profitability.
- Defensive Appeal: In a slowing economy, Oracle's enterprise software and cloud contracts (which now account for 42% of revenue) are recession-resistant.
- Dividend Safety Net: With $13 billion in cash and $20.8 billion in annual free cash flow, Oracle can easily fund its $0.50 quarterly dividend even if growth slows.

When to Buy and Why Now

Oracle's stock has underperformed AI stocks in 2025, but this creates a buying opportunity. The market's rotation toward dividend-paying stocks (as noted by Carillon itself) aligns with Oracle's strengths. With Safra Catz's FY2026 guidance implying $16.5 billion in IaaS revenue (up from $3.0B in Q4), the stock has room to rally. Historical data supports this strategy: a backtest from 2020 to 2025 showed that buying ORCL on positive quarterly earnings and holding for 60 days yielded a 32.67% return. However, this came with volatility (24.75%) and a maximum drawdown of -48.96%, underscoring the need for risk-aware positioning.

Final Verdict: Buy ORCL for Steady Gains in a Volatile Market

Oracle isn't the flashiest tech name, but its cloud growth, RPO strength, and dividend yield make it a safer, higher-ROI alternative to overhyped AI stocks. While skeptics focus on near-term valuation multiples, the real story is Oracle's transformation into a cloud leader with a moat against AI-driven competition. With shares down 12% year-to-date and guidance pointing to FY2026 outperformance, now is the time to position for Oracle's next chapter.

Investment Recommendation: Buy ORCL at current levels. Set a 6-12 month price target of $180-$200 based on FY2026 cloud revenue guidance and RPO growth. Hold for long-term compounding via dividends and share buybacks.