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When you have blue-chip stocks with a market cap in the hundreds of billions of dollars, getting a large move in the share price is unusual. This is because it’s already a big company, so getting a sharp increase in the value has to come from a factor that could really move the needle. Yet Oracle (NYSE:ORCL) stock is up 32% so far today (10 September), and there’s good reason for it!
Details behind the move
Oracle shares surged dramatically following the release of its fiscal first-quarter earnings. It featured an ambitious forward-looking outlook that clearly got investors excited. The company significantly raised its full-year growth forecast for the Cloud Infrastructure division, projecting a 77% increase in revenue to about $18bn for the current fiscal year.
This guidance came on the heels of four multi-billion-dollar contracts announced during the quarter. This helps to reflect the surging demand for Oracle’s AI-capable cloud infrastructure. Oracle also revealed its backlog of contracted but not yet recognised revenue had ballooned to approximately $455bn. Incredibly, this is up 359% versus last year.
Investors clearly viewed this as a signal that Oracle is transforming from a software vendor into a critical backbone for AI infrastructure. Since everyone is on the hunt for the next big AI stock, the share price jump is understandable. Some contracts, such as a substantial agreement with OpenAI involving a huge amount of computing capacity, underscore Oracle’s growing role in the AI race.
When you put it all together, the jump in the stock today amounts to the largest single-day gain for the company since 1999.
Deciding what’s next
I don’t own Oracle stock. Those who do clearly will be happy today, although the extent of the move higher shows me that this did come as a surprise (albeit a positive one) for many in the stock market.
I think the stock can keep rallying over the coming year if it genuinely can pivot to being a core provider of AI-ready cloud infrastructure. The size of the current backlog suggests it already has large momentum here that will keep it busy growing for some time. Also, Oracle is still in the early stages of its cloud adoption relative to competitors. This means it has more potential for market share gains as clients look to diversify providers for capacity and pricing reasons.
Let’s also remember that Oracle is a large company with significant funding and cash flow. This means it has scope to invest large amounts into new markets if it believes there’s potential.
Of course, nothing is guaranteed. It has a price-to-earnings ratio of 54, which is very high! Even for a growth stock, this level could indicate it’s overvalued. Further, Oracle is pushing into arguably the most competitive and fast-paced sector right now, AI. The pace of innovation means companies can get left behind very fast.
Even with these risks, it’s a stock that has really caught my eye, so I’m seriously thinking about adding it to my portfolio.
