To the casual observer, Oracle’s emergence as a full-fledged player in cloud computing may have come as a surprise.but Barons Readers should not be surprised.
In early 2021, I wrote a cover story with the headline “Oracle is turning into a cloud giant.” At the time, Oracle (NYSE: ORCL) was pushing cloud-based versions of its portfolio of database software and enterprise applications. Oracle was also aggressively building a cloud computing business to compete with the three cloud giants, Amazon.
,
microsoft
,
and the alphabet
.
There was considerable skepticism from investors about Oracle’s chances of success. But the company certainly believed.
Regarding the story, Oracle Cloud Executive Vice President Clay Magouyrk told me: “There’s no way Oracle won’t be seen as anything but a cloud company in the next couple of years.”
After all, it was a great call from Clay. Oracle’s stock price is up about 110% since our article. Last fall, when the stock fell from a peak near $100 to around $60, we wrote that the market had a second chance to buy the evolving cloud play cheaply. The stock closed at $126.55 on Thursday. Sure enough, Oracle’s story is now about the cloud.
What Maguik did not foresee, no one expected, is the rapid rise of generative artificial intelligence as a major driver for nearly every company in the tech space, especially cloud computing providers. was. The market’s renewed enthusiasm for Oracle has brought the 47-year-old company to the forefront for the first time in many years and sent Oracle’s stock to a record high. That makes founder Larry Ellison the third richest person in the world after his friend Elon Musk and LVMH CEO Bernard Arnault.
Ads – scroll to continue
Last Monday, Oracle added fuel to the fire, reporting better-than-expected results for the quarter and fiscal year ended May. In the fourth quarter, Oracle’s cloud application business grew 45% year-over-year. The company’s cloud infrastructure business grew 76%, accelerating from 55% growth a quarter ago.
A day after its financial results, Oracle announced that it would be adding generative AI capabilities to its enterprise software lineup in the coming weeks. And it announced a new partnership with large-scale language modeling startup Cohere.
A torrent of good news is forcing stock market skeptics to reconsider. Bulls, meanwhile, have raised their price targets to levels that seemed absurd just a few months ago. Following Oracle’s results last week, Mizuho analyst Siti Panigrahi and Guggenheim’s John Diffucci both raised their targets to $150, about 20% above recent levels. As long as the company’s cloud business continues to grab market share from its big rivals, the stock could go higher.
Ads – scroll to continue
Last week, I met with Magouyrk to discuss his latest take on Oracle’s cloud and AI business. He is as strong as ever.
Magouyrk sees Oracle’s AI strategy in three layers. “Generative AI at the bottom of the entire stack requires a very large infrastructure for training and inference,” he says, driving demand for Oracle’s cloud capacity. This is because the company has a strong relationship with his Nvidia (NVDA) that allows the company to provide his AI customers with thousands of GPU arrays to train new models on. That’s it.
The second tier, he said, combines large language models with expertise in specific vertical markets and a large customer base. Here he comes into Cohere. We’re very good at building relationships with companies, data security and privacy, and great infrastructure,” Magwik says.
Ads – scroll to continue
The third part is the application. Oracle announced last week that it intends to use generative AI to expand the reach of its enterprise software. “Think about generating job listings from” [HR software], automatically file police reports based on body camera interactions for first responders, or automate and summarize patient discharge records in medical applications. The uses are endless. ”
Initially, Maggoik said most of the opportunities are at the “bottom of the pyramid” to help companies train AI models. “But in 15 years it will be an inverted pyramid,” he says. “There will be opportunities to incorporate this technology into applications.”
Of course, Oracle isn’t going to give these things away for free.
Ads – scroll to continue
Magouyrk said an AI-enabled version of Oracle’s flagship app is coming soon. “We’re talking months, not years. There’s a lot of demand and a lot of value in that demand.”
As for the accelerating growth of Oracle’s overall cloud business, Maguik, who once worked as a senior engineer at Amazon Web Services, said it’s not surprising.
“Cloud infrastructure is a very large space and it takes time for a business to grow,” he adds. “More people are taking this seriously than two years ago. We had the ability to serve , we had the capital to scale our business, we had the technology, all we had to do was show it worked, build the reference, build the momentum It was to ride, and we are accelerating now that it is happening.”
Email Eric J. Savitz (eric.savitz@barrons.com).
