Oracle hits record after 50% surge in 2023, defying tech struggles

inspiration Moment passes.

For years, the database software developer has lagged behind its technical competitors in building cloud technology that meets the demands of the modern enterprise. But that’s changing, and Wall Street is quite pleased with what it’s seeing from 46-year-old Larry Ellison.

Oracle shares rose 4.8% on Wednesday to $122.24, closing at a record high for the fifth consecutive day and eighth time this month. The stock is up 73% over the past 12 months, outperforming all other large-cap tech stocks that have crossed that stretch other than nvidia. Shares are up more than 50% in 2023, marking the best year for shareholders since the internet boom of 1999.

The company got its latest boost this week after reporting stronger-than-expected earnings and revenue, leading analysts to agree. Goldman Sachs Upgrading its rating on the stock to the equivalent of a hold from a sale.

Within hours of the earnings report, Bloomberg announce Ellison has reached number four on the billionaires ranking, his highest place to date. He surpassed Bill Gates, one of the co-founders of Microsoft.

“Let’s finally give him credit where it’s due,” said Eric Lynch, managing director of Scharf Investments, which owned $163 million worth of Oracle stock at the end of the first quarter, according to regulatory filings. “The upside is finally showing.”

The story that excites investors these days? No surprise. It’s about artificial intelligence.

Before the last rally, Oracle was largely seen as technology that was, not innovative. In the hot cloud market, it has lost market share sales force in selling software to salespeople, and has been a minor player in Infrastructure as a Service (IaaS), where AmazonAnd Microsoft And Google They were leading the way. Oracle took big business from TikTok and Zoom, but the big names were often going elsewhere.

Now, Oracle is experiencing exponential growth thanks to the craze for generative AI, technology that can craft images or text from a few words of human input. The company is a significant investor in Cohere, an enterprise-focused AI startup whose technology can support copywriting, search, and abstracting.

Cohere is valued at more than $2 billion and ranked 44th on CNBC’s 2023 Disruptor 50 list.

On the earnings call, Ellison told analysts that customers “recently signed contracts to purchase more than $2 billion of capacity” on what Oracle calls Gen 2 Cloud.

After its market value fell below that of the younger Salesforce team in 2020, Oracle regained the lead over its longtime rival the following year, and now it’s not even close. Oracle is valued at $330 billion as of Wednesday’s close, while Salesforce has a market capitalization of $204 billion.

Oracle is growing faster, last quarter increasing revenue 17% over the prior year, compared to Salesforce’s 11%.

Oracle’s cloud infrastructure revenue increased 76% from the prior year, outpacing the 55% growth in the prior quarter. This is one of the data points highlighted by analyst Kash Ranjan and his colleagues at Goldman Sachs in their upgrade.

Analysts said the acceleration is “a clear indication that Oracle’s reported price/performance advantage versus super-customers is resonating with the market (both new and existing customers), which should position the company for a lasting share gain despite its late entry into the market.” IaaS.”

Goldman analysts said that even as cloud infrastructure grows, Oracle management has called for no change in capex in the new fiscal 2024 year, which bodes well for generating free cash flow.

Like many enterprise-focused technology companies, Oracle has begun selling cloud-based versions of applications that customers previously ran in their on-premises data centers. The company expanded its reach with the $9.1 billion acquisition of NetSuite in 2016.

Rebuilding the bowels of the data center was less straightforward, and Oracle quickly fell behind. In 2009, Ellison eviction The emergence of cloud computing brands.

“Our industry is very strange,” he said. “You know, they just change the term, and they think they invented the technology.”

Ellison made a bad bet. Between 2010 and the end of 2020, not only did Oracle stock perform poorly on Amazon, Microsoft, and Google, but just buying the S&P 500 Tracking Index would have returned nearly twice what an investor would have made on Oracle.

Oracle eventually came around to charging organizations for servers, storage, and networking services based on how much they used, following the path of market leaders.

The company introduced Elastic Compute Cloud in 2015, nine years after launching Amazon Web Services’ foundational EC2 compute service. Then, in 2018, Oracle launched its second generation cloud cluster.

In October Ellison He said He believed Oracle was copying competitors, so he scrapped existing cloud efforts and pushed for a new approach. As organizations look for ways to reduce IT spending, Ellison Monday told analysts that Oracle’s cloud database could be faster and cheaper than what’s available from AWS.

Lynch, whose Los Gatos, Calif., investment firm acquired a stake in Oracle in 2011, noted that people used to mock Ellison for his earnings call routine of listing the names of small operations that signed up for Oracle cloud services. The company was still attracting value-oriented investors because it had a strong balance sheet due to a huge list of longstanding clients, and it boasted stronger profit margins than many of its peers.

Now Ellison can take out big brands using his company cloud. Oracle called it out dollar treeAnd Exxon MobilAnd Pfizer as customers in the cloud during the fiscal fourth quarter.

Lynch acknowledged that Oracle appears to be enjoying its place in the AI ​​gold rush, and said he does not expect such high growth in cloud infrastructure to continue.

For now, Ellison can enjoy bragging rights for his Silicon Valley company at a time when several of its high-profile and once-powerful neighbors are downsizing for the first time in their history. Oracle had Lay off some workers But fewer.

On Oracle’s earnings call this week, CEO Safra Catz took a minute to express his gratitude to the company’s customers and employees.

“Some of you are new, many of you have been with us for years, even decades, and I think you all see that our best days are in fact ahead,” she said. Katz then thanked Ellison for “his leadership with ingenuity, determination and vision and for allowing us all to be part of this amazing journey, which is just beginning.”

He watches: “Oracle is several years behind in the AI ​​race despite its high profits,” says Brent Thill of Jefferies