Where Will Oracle Stock Be in 1 Year?

Shares of Oracle (ORCL -0.38%) have underperformed the broader market in the past year with gains of just 13%, which is lower than the 25% jump the S&P 500 index has recorded over the same period. However, there is a solid chance that the company, which is known for its database software, could shrug off this underperformance and deliver market-beating returns over the next year.

After all, Oracle is turning out to be a key player in the cloud computing market now thanks to the growing demand for artificial intelligence (AI) applications. This became evident from the company’s latest results for its fiscal 2024’s fourth quarter (ended May 31), which show its growing influence in the cloud AI space.

Let’s take a look at Oracle’s quarterly numbers and see why this tech stock could turn out to be a solid investment over the next year.

Growing AI demand is set to drive stronger growth at Oracle

Oracle’s fiscal Q4 revenue increased 4% year over year in constant currency terms to $14.3 billion. Its fiscal 2024 revenue, on the other hand, jumped 6% to $53 billion. Oracle’s non-GAAP (adjusted) earnings landed at $1.63 per share for the quarter. Admittedly, the numbers weren’t great as Oracle missed Wall Street’s expectation of $1.65 per share in earnings on $14.56 billion in revenue.

However, the stock surged more than 11% in premarket trading once the results were out. That’s because Oracle reported a terrific year-over-year increase of 44% in its remaining performance obligations (RPO) to $98 billion. That was a nice acceleration from the 29% year-over-year jump in Oracle’s RPO in third quarter.

This metric, which refers to the total value of future contracts of a company, substantially exceeded Wall Street’s forecast of $73.9 billion as Oracle saw a surge in the number of companies using its cloud infrastructure to deploy their AI solutions.

ChatGPT developer OpenAI, for instance, has decided to use Oracle’s cloud infrastructure to run its deep learning models and AI workloads. CEO Safra Catz added on the latest earnings conference call that it signed 30 AI-related contracts worth more than $12 billion in the previous quarter. For the full year, Oracle signed $17 billion worth of AI contracts, which means that the adoption of its cloud platform for running AI applications surged big-time in fiscal Q4.

It is worth noting that OpenAI is one of the many marquee names using Oracle’s cloud infrastructure for their AI operations. The company’s client list also includes the likes of Nvidia, Google, Microsoft, xAI, and many others. Such strong clientele and the growing adoption of Oracle’s AI cloud infrastructure explains why its cloud infrastructure-as-a-service (IaaS) revenue increased 42% year over year last quarter to $2 billion, exceeding the $1.97 billion consensus estimate.

Meanwhile, its overall cloud revenue (including software-as-a-service) increased 20% year over year to $5.3 billion last quarter. More importantly, management is forecasting stronger growth in its cloud business in the new fiscal year. According to Catz: “Throughout fiscal year 2025, I expect continued strong cloud demand to push Oracle sales and RPO even higher and result in double-digit revenue growth this fiscal year.” 

More specifically, Oracle sees its cloud infrastructure services revenue in fiscal 2025 growing at a faster rate than the 50% growth seen in the previous fiscal year. As such, it is not surprising to see Oracle expecting its overall revenue to grow in the double digits in fiscal 2025 following last year’s mid-single-digit gains, which would exceed analysts’ expectations.

A jump of even 10% in Oracle’s top line this year would send its annual revenue to $58.3 billion, which is higher than the $57.7 billion figure that analysts were anticipating. This could set Oracle stock up for solid gains in the next year.

Buying the stock is a no-brainer right now

Oracle shares are currently trading at 6.7 times sales. That’s lower than the U.S. technology sector’s average of 7.6. Assuming the company does hit $58.3 billion in revenue in the current fiscal year and continues to trade at its current discounted valuation, its market cap could rise to $391 billion in the coming year. That would be a 15% jump from current levels.

However, Oracle’s massive RPO indicates that it could end up delivering stronger growth, as a result, the stock market could reward it with a higher valuation. So, there is a good chance of Oracle providing investors with much healthier returns in the next year as compared to what it has done in the past year, which is why it may be a good idea to buy this AI stock while it is still cheap.