Boasting a strong market cap of $312.77 billion, software giant Oracle Corporation (ORCL) is expected to disclose its fiscal third-quarter earnings (ended February 2024) soon. Wall Street is buzzing with high expectations, forecasting a 7.3% year-over-year revenue climb to $13.30 billion, alongside a 12.9% year-over-year EPS surge to $1.38.

With the rise of generative AI platforms like ChatGPT and Bard, tech giants are in a fierce race to adopt this transformative technology. Amid this, ORCL made its mark last year by partnering with industry giants like NVIDIA and Elon Musk's xAI.

Furthermore, despite fierce competition from industry heavyweights like Amazon Web Services, Google Cloud, Microsoft Azure, and others in the cloud space, ORCL managed to secure lucrative contracts worth over $4 billion last year from prominent AI developers for its Oracle Cloud Infrastructure (OCI) to train their generative AI models.

In its recent quarterly report, ORCL CEO Safra Catz emphasized the skyrocketing demand for the company’s OCI and generative AI services. Catz emphasized that the company's cloud divisions are on pace to achieve nearly $20 billion in annual revenue run rate, reflecting the unprecedented surge in demand for cloud services.

Meanwhile, Chairman and CTO Larry Ellison echoed this bullish sentiment, emphasizing the company’s robust expansion plans, including the addition of 66 new cloud data centers and the construction of 100 more to meet rising demand.

Furthermore, in an effort to expand its generative AI services, On January 23, 2024, ORCL officially launched the OCI Generative AI service, accompanied by a suite of new features aimed at simplifying enterprises’ adoption of the latest generative AI advancements.

The OCI Generative AI service, now generally available, is a fully managed solution seamlessly integrating large language models (LLMs) from Cohere and Meta Llama 2 to cater to various business needs. This enhanced service features multilingual support for over 100 languages, improved GPU cluster management, and flexible fine-tuning options.

In addition, ORCL is dedicated to returning its shareholders value through quarterly dividend distributions. On January 25, 2024, ORCL paid its shareholders a quarterly dividend of $0.40 per share.

The company’s annual dividend of $1.60 translates to a 1.41% yield on the prevailing price level, while its four-year average dividend yield is 1.53%. Its dividend payouts have grown at CAGRs of 18.6% and 16.1% over the past three and five years, respectively.

In terms of price performance, ORCL’s shares have surged 31.8% over the past year to close the last trading session at $113.78.

Here are the fundamental aspects of ORCL that could influence its performance in the near term:

Strong Financials

For the fiscal 2024 second quarter, which ended on November 30, 2023, ORCL’s total revenue increased 5.4% year-over-year to $12.94 billion, while its non-GAAP operating income rose 8.9% from the year-ago value to $5.54 billion. Moreover, the company’s non-GAAP net income and non-GAAP EPS came in at $3.76 billion and $1.34, up 13.6% and 10.7% from the prior-year quarter, respectively.

Optimistic Analyst Estimates

The consensus revenue estimate of $53.54 billion for the fiscal year ending May 2024 represents a 7.2% improvement year-over-year. Meanwhile, the consensus EPS estimate of $5.55 for the same period reflects an 8.5% year-over-year surge.

Robust Profitability

ORCL’s trailing-12-month EBITDA margin of 39.33% is 306.9% higher than the 9.67% industry average. Likewise, its trailing-12-month net income margin of 19.63% is 648.4% higher than the industry average of 2.62%. Furthermore, the stock’s trailing-12-month levered FCF margin of 20.02% is 123.8% higher than the 8.94% industry average.

POWR Ratings Exhibit Solid Prospects

ORCL’s promising fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ORCL has a B grade for Sentiment, consistent with its positive analyst estimates for the to-be-reported quarter and fiscal year ending May 2024.

Within the B-rated Software - Application industry, ORCL is ranked #39 out of the 132 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Stability, and Quality. Get all ORCL ratings here.

Bottom Line

ORCL’s strategic initiatives in the generative AI and cloud space have propelled its growth trajectory. Despite stiff competition from industry giants, the company has made its mark evident from the surging demand for its services. In addition, the recent launch of the OCI Generative AI service further demonstrates ORCL’s dedication to innovation and meeting evolving market demands.

Overall, ORCL’s impressive fundamentals, upbeat analyst estimates for the upcoming quarter, strategic plans for expansion, and commitment to shareholder value could make it an attractive investment opportunity. Thus, adopting a bullish stance on the company’s shares might be a wise move now.

How Does Oracle Corporation (ORCL) Stack Up Against Its Peers? 

While ORCL has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Software - Application industry: eGain Corporation (EGAN), Karooooo Ltd. (KARO), and SS&C Technologies Holdings, Inc. (SSNC), carrying A (Strong Buy) ratings. To explore more Software - Application stocks, click here.  

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ORCL shares were trading at $113.90 per share on Monday morning, up $0.12 (+0.11%). Year-to-date, ORCL has gained 8.45%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.

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