Like other technology companies, oracle (NYSE: ORCL) focuses on the brass ring of artificial intelligence (AI). But how can a company with only a 2% share of the cloud services market compete with the next giants? Amazon and Microsoft?
The answer lies in the timing of Oracle's market entry and strategy to offer unique AI cloud solutions.
Oracle's entry into the cloud services market is a blessing
Oracle's cloud computing growth ambitions coincide with the emergence of radical, transformative technologies that are upending the traditional cloud services market. The emergence of AI has dramatically accelerated growth opportunities for all cloud providers because of its massive resource demands and the unprecedented demand it creates from businesses of all sizes.
According to Grand View Research, the AI cloud market size is expected to be valued at $45 billion in 2022 and grow at a compound annual growth rate of 39.6% from 2023 to 2030.
As a new entrant to a market with strong customer interest in a variety of services, Oracle is in the enviable position of riding the crest of the AI wave. In the company's third quarter (ended February 29th), revenue from its new Gen2 AI cloud platform increased by a whopping 53%.
Enterprise customers demand customized AI cloud solutions
AI is a disruptive technology, and a one-size-fits-all cloud solution landscape dominated by a few providers can no longer meet the needs of diverse businesses with differing AI cloud requirements.
Depending on your company, the best AI solution may be achieved by using multiple cloud providers. Other companies may decide that building a hybrid cloud is more appropriate. This type of cloud configuration allows you to leave some software functionality in your own data center while moving other important applications to the cloud.
These are exactly the flexible, innovative, and customized AI cloud configurations that Oracle has been rolling out for its enterprise customers.
Oracle Joint Venture Brings Greater Flexibility to AI Cloud Services
The company's recent partnership with Microsoft gives customers access to Oracle database programs running on its cloud infrastructure deployed in Microsoft's Azure datacenters. Oracle doesn't care if some of its customers use other cloud providers, so long as it's willing to give them some recognition for, say, its AI or cloud database capabilities.
Similarly, the company Nvidia Oracle's generative AI solutions run on Nvidia's powerful graphics processors and can be deployed twice as fast as competitors at half the cost, making cloud computing platforms even more attractive. https://www.fool.com/author/20624/
Collaborations with Nvidia and Microsoft show that Oracle is not stuck with traditional rigid cloud solution strategies to grow its business. The company's AI cloud products can be agile and responsive to each company's unique needs. This customer-centric approach is why the enterprise market seeks configuration solutions from Oracle.
Oracle's growth strategy is paying off
Oracle's remaining performance obligations increased to $80 billion in the third quarter. The company expects 43% of this total, or $34 billion, to be recognized as revenue within the next 12 months. This backlog not only demonstrates the huge pent-up demand for its services, but also the sustainability of its AI cloud growth strategy.
The company recently hit a new milestone: In the quarter ended February, cloud revenue surpassed that of its license and support services business for the first time, signaling that the company is nearing the completion of its transformation from a seller of traditional database systems to a powerful AI cloud services provider.
Oracle has a very high debt-to-equity ratio of 15.65, well above the software industry average of 0.21. However, the company continues to generate ample cash flow from operations, reaching $18.2 billion over the past 12 months, more than enough to meet its debt service requirements.
Investors should consider holding Oracle for the long term, as the current stock price has yet to fully reflect its incredible AI growth potential.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, serves on The Motley Fool's board of directors. John Kinsella has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Microsoft, NVIDIA, and Oracle. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
“Oracle Making AI Cloud Strides” was originally published by The Motley Fool
