Overnight surged by 12%, what signals does Oracle's earnings report reveal?

Under the rapid development of AI, the demand for Oracle cloud computing services has surged, leading to a sharp increase in its stock price overnight.

Oracle's stock price soared by nearly 12.0% overnight, marking the largest single-day increase since December 10, 2021. The unexpected performance of Oracle this fiscal quarter has reignited investors' confidence in this long-established software giant.

On March 12, cloud infrastructure giant Oracle announced its performance for the third quarter of the fiscal year 2024, with the cloud computing revenue surging by 25% to $5.1 billion, exceeding expectations. Backlog orders also saw a significant increase, along with positive performance guidance and the upcoming release of a "joint statement" with NVIDIA.

Analysts have raised their target prices, noting that Oracle's performance growth and prospects stand out, especially in a quarter where other software companies have disappointed.

Significant Growth in Cloud Computing Revenue and Active Collaboration

According to the financial report, cloud computing revenue surged by 25% to $5.1 billion, exceeding expectations, and the remaining performance obligations (a measure of backlog orders) saw a significant year-on-year increase. Typically, in the software industry, backlog growth is often followed by capital expenditure growth, deferred revenue growth, and then revenue recognition.

William Blair analyst Naji pointed out:

The most surprising aspect is that Oracle's remaining performance obligations surged by 29% year-on-year to over $80 billion, compared to growth rates of only 7% in the previous two quarters, reflecting a sharp increase in AI orders.

On the other hand, Oracle actively engages in collaborations, announcing an exciting joint statement with NVIDIA soon. It is expected that capital expenditures for data center construction in the fiscal year 2025 will reach $10 billion.

During the financial report meeting, Oracle stated:

We are building an AI data center in the United States, which can accommodate 8 Boeing 747 aircraft, making it potentially the largest AI data center in the world.

Oracle's Chairman Larry Ellison also mentioned the increase in business from Microsoft, stating:

The era of a single cloud has ended, customers need multi-cloud environments that can interact with each other. Only by doing so, we have no competitors in this regard.

Naji believes that Oracle has improved its database positioning and is now a "more open multi-cloud platform provider," which is a significant change for a company that has historically been reluctant to collaborate with others. Overall, Naji believes that this performance marks Oracle's entry into a new high-growth phase, with the potential to boost profitability and cash flow in the coming years. As a result, Oracle's rating has been upgraded from "Market Perform" to "Outperforming the Market."

Other analysts are also optimistic about Oracle's prospects. Bernstein analyst Mark Moerdler pointed out that Oracle has provided a "healthy" guidance for the next quarter, with a "robust" growth outlook that is likely to dispel market concerns about its growth over the past few quarters. In contrast to the weak performance of its peers, Oracle's performance demonstrates its business strength and stability. Moerdler has given Oracle an "Outperforming the Market" rating and raised its target price from $147 to $159, indicating a 25% upside potential in the current stock price.