Investors showed excitement on Wednesday as Oracle's shares soared by 9%, fueled by a surge in demand for the company's cost-effective cloud infrastructure services, particularly from artificial intelligence applications. If these gains hold, Oracle's market valuation could see an increase of about $30 billion from its $340 billion valuation as of the previous market close, with shares already having gained 18% so far this year.
Oracle has been strategically expanding its cloud infrastructure unit, which offers cloud computing and storage services to companies at competitive prices. This move positions Oracle to compete with industry giants like Alphabet's Google, Microsoft, and Amazon.com in the cloud services market.
The company's cloud infrastructure has attracted business from venture capital-backed generative AI startups, including xAI, founded by Elon Musk. Additionally, Oracle recently announced partnerships with OpenAI and Google Cloud to extend its cloud infrastructure offerings to customers, further enhancing its credibility as an AI platform.
Analysts view these partnerships positively, with Evercore's Kirk Materne noting that Oracle's collaboration with OpenAI strengthens its position in the AI market, while the new relationship with Google expands its distribution for its database services.
Despite Oracle's strong performance in cloud services, its fourth-quarter results fell short of estimates, partly due to competition in its legacy database and enterprise resource planning (ERP) software business. As more small- and medium-sized businesses digitize their operations, Oracle faces pressure from less expensive alternatives in the market.
Morningstar analyst Julie Sharma suggests that Oracle may experience significant churn from its software to competing database and ERP software firms due to the diminishing switching cost argument amid widespread digital transformations.
Despite these challenges, Oracle's stock remains attractive to investors, trading at a lower forward earnings multiple compared to its competitors like Amazon.com, Microsoft, and Alphabet, indicating potential growth opportunities in the future.
