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Oracle jumps 13% as AI and cloud performance excites investors

AInvestTuesday, Mar 12, 2024 9:38 am ET
2min read

Oracle (ORCL) reported Q3 earnings after the bell on Monday, beating analyst expectations and highlighting its position in the AI boom. The company posted generally in line results and the cloud growth of 25% was below the 26% analyst expectations. However, its commentary around its AI business and progress in transitioning its clients over to its new Gen2 cloud, coupled with notable wins in the large cap space, has driven the stock higher in after hours trade. 

The company's revenue for the fiscal third quarter came in at $13.3 billion, with net income and earnings per share (EPS) at $4 billion and $1.41, respectively. 

One of the key highlights of Oracle's Q3 performance is its cloud revenue growth. The company's cloud revenue, consisting of Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS), reached $5.1 billion, representing a 25% increase in USD and 24% in constant currency. Within the cloud segment, Oracle witnessed robust growth in both its Cloud Infrastructure (IaaS) and Cloud Application (SaaS) revenues. Cloud Infrastructure revenue surged by an impressive 49% in USD and constant currency, reaching $1.8 billion. Similarly, Cloud Application revenue increased by 14% in both USD and constant currency, amounting to $3.3 billion.

Oracle's success in the cloud market is further reflected in its Fusion Cloud ERP and NetSuite Cloud ERP revenues. Fusion Cloud ERP revenue grew by 18% in both USD and constant currency, reaching $0.8 billion. NetSuite Cloud ERP revenue achieved a growth rate of 21% in USD and 20% in constant currency, amounting to $0.8 billion. These results highlight Oracle's strong position in the enterprise resource planning (ERP) sector.

Oracle's CEO, Safra Catz, emphasized the significant growth in the company's Total Remaining Performance Obligations, which increased by 29% to over $80 billion in Q3. This record-high backlog is driven by large new cloud infrastructure contracts signed during the quarter. Catz stated that Oracle expects 43% of the backlog to be recognized as revenue over the next four quarters. The CEO also highlighted the high demand for Oracle's Gen2 AI infrastructure, acknowledging that the company is rapidly expanding its cloud data centers to meet this demand.

Nvidia, McDonald's, Walmart, and Uber are among the companies using Oracle's cloud offerings. Oracle expects to continue receiving large contracts reserving cloud infrastructure capacity, as the demand for its Gen2 AI infrastructure substantially exceeds supply. The company is opening and expanding cloud datacenters rapidly, and its Gen2 Cloud Infrastructure business will remain in a hypergrowth phase for the foreseeable future. 

After transferring most customers from Cerner, a health information technology company acquired in 2021, to Oracle's Gen2 Cloud infrastructure in the third quarter, the company will begin delivering its new Ambulatory Clinic Cloud Application Suite to these customers. This delivery is expected to enable the rapid modernization of customers' health systems and transform Cerner and Oracle Health into a high-growth business for years to come. 

Looking forward, Oracle provided guidance for the fourth quarter of the fiscal year. The company expects total revenue growth of 4-6% compared to the same period last year. The guidance indicates that total revenue, excluding the impact of Cerner, is projected to grow by 6-8%. Additionally, Oracle expects significant growth in its Cloud Revenue, excluding Cerner, with an anticipated range of 22-24%.

Oracle shares surged over 12% to $128.10 in after-hours trading on Monday, adding to the stock's 34% gain over the past year.

In conclusion, Oracle's Q3 earnings report highlights the company's strong growth and position in the AI market, with a focus on healthcare expansion. The demand for Oracle's Gen2 AI infrastructure far exceeds supply, and the company is committed to expanding its cloud infrastructure and datacenters to meet this demand. Oracle's new healthcare offerings have the potential to drive significant growth in the coming years.


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