(Bloomberg) — Oracle surged to a record high after it announced that its cloud computing business would continue to grow rapidly next year.
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Oracle said in a statement Monday that cloud revenue grew 54% to $4.4 billion in the fourth quarter of the fiscal year, following a 45% increase in the previous quarter. In the fiscal year ending May 2024, Cloud revenue should grow at least as much as the previous year, Chief Executive Officer Safra Catz said on a post-earnings conference call.
Oracle is focusing on growing its cloud infrastructure business to compete more strongly with recently slowing market leaders Amazon.com and Microsoft. The boom in generative AI, which requires enormous computing power, is driving demand for Oracle’s cloud services, executives said. Generative AI startup Cohere announced last week that Oracle was among the investors in its $270 million funding round.
The stock rose as much as 6.5% to $123.99 in New York on Tuesday. Oracle rose 42% in the year to Monday’s close, compared with a 32% rise in the iShares Enhanced Software ETF.
After the results, Barclays analyst Raimo Renshaw said, “We believe stocks are maintaining their recent strong momentum as the narrative of cloud momentum spurred in part by AI demand remains intact. there is,” he said. Guggenheim Securities analyst John Diffucci said the sector’s continued strength was unusual given the current economic environment.
Austin, Texas-based Oracle said cloud infrastructure revenue rose 76% to $1.4 billion in the period ending May 31. Cloud application revenue increased 45% to $3 billion.
Anurag Rana, an intelligence analyst at Bloomberg, said the accelerated earnings could raise concerns that the pressure on Amazon and Microsoft’s cloud services will increase. “Oracle’s message of low cost and superior features is bound to raise concerns about potential loss of market share, but we believe it is too early to raise alarm bells.”
In a statement, Oracle Chairman Larry Ellison said in a statement that more than $2 billion in cloud capacity was recently signed with large-scale language model development companies such as Mosaic ML, Adept AI, and Cohere. “His Gen2 Cloud from Oracle quickly became the first choice for running Generative AI workloads,” he said. Separately, Oracle announced Tuesday morning that it plans to work with Cohere to develop generative AI services.
Total revenue for the quarter increased 17% to $13.8 billion. The average analyst estimate was $13.7 billion, according to data compiled by Bloomberg. Earnings, excluding some items, were $1.67 per share, compared with the average forecast of $1.58.
“Both of our strategic cloud businesses are growing and growing faster,” Catz said in a statement. “This bodes well for an even stronger year in 2024.”
Another big bet for Oracle, its one-year-old acquisition of digital health record provider Cerner Inc. (now called Oracle Health), generated $1.5 billion in the quarter. Oracle began laying off the division earlier this year after management promised to improve profitability.
Catz said cloud growth, excluding Oracle Health, would be about 29% this quarter through August. Total revenue is expected to increase by 8% to 10%, she said. Analysts expected an average gain of 8%. Earnings, excluding certain items, ranged from $1.12 to $1.16 per share.
Much of Oracle’s cloud revenue comes from business applications such as Fusion software for managing corporate finances and NetSuite’s enterprise planning tools for small businesses. Fusion’s sales were up 26% in the quarter compared to a 25% increase in the previous quarter. NetSuite revenue increased 22%, down from 23% in the prior quarter.
(Adds analyst comments in 7th paragraph, details AI plans in 8th paragraph, updates stock price)
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