This year's 51% surge, what's behind Oracle?

As Intel and Cisco are still struggling to adapt to the industry changes brought by artificial intelligence, Oracle, another traditional tech company, has completed a gorgeous transformation and become the new darling of Wall Street.

Driven by cloud business, Oracle's performance in the new quarter far exceeded market expectations, boosting the company's US stock price by 11% on Tuesday, further rising to a record high of $157.10 on Monday. This year, Oracle has released three financial reports in total, and after each report, the company's stock price has seen a double-digit increase.

Year-to-date, Oracle's stock price has risen by 51%, second only to Nvidia (up 143%) among tech giants, and better than Meta's 48% cumulative increase. Former tech leaders Intel's market value has shrunk by 60%, and Cisco's market value has dropped by nearly 3%, with both companies announcing large-scale layoffs in their financial reports last month.

Oracle, with a 47-year history, started with relational database software and missed the wave of cloud computing transformation over the past decade, leading to stagnation in its development. However, the rise of artificial intelligence has brought new opportunities, and Oracle has now become the fourth largest player in the cloud computing field.

Cloud Business - A New Growth Engine

The financial report released on Monday showed that Oracle's first-quarter revenue increased by 7% year-on-year to $13.3 billion, with cloud infrastructure revenue, a focus of attention, increasing by 45% year-on-year to $2.2 billion, both exceeding market expectations. Although Oracle's cloud infrastructure still lags far behind Amazon Web Services (AWS), Microsoft, and Google, it has become the company's new growth engine.

"All businesses are showing growth momentum," Guggenheim wrote in a report, Oracle is back!

In a report on Tuesday, JP Morgan wrote that after experiencing thirteen years of single-digit growth, Oracle will accelerate back to double digits. The institution upgraded Oracle's rating from hold to buy, stating:

We remain confident in Oracle's earnings per share and are committed to achieving double-digit revenue growth for the full year.

Since 2011, Oracle has only achieved double-digit revenue growth in one year, with an 18% increase in the 2023 fiscal year, and the company has experienced revenue declines four times.

Oracle is currently holding its annual CloudWorld conference, which will conclude in Las Vegas on Thursday. With the release of the financial report and the progress of the conference, investors are satisfied with Oracle's performance in cloud business, including its infrastructure and database business.

Ellison stated during Monday's earnings conference call that building large data centers is something Oracle is very good at.

This is why we are doing so well in the AI training business.

A recent report by Morgan Stanley estimates that by 2027, the proportion of AI revenue to Oracle's total cloud computing revenue will increase from 15% in the most recent fiscal year to over 50%. Synovus Trust portfolio manager Dan Morgan, who holds shares in Oracle, said:

Compared to relational databases, Oracle is now more often seen as an artificial intelligence company.

Turning Competitors into Partners

In addition to competing with cloud computing giants, Oracle is also accelerating its efforts to establish partnerships with them.

A year ago, Oracle founder Larry Ellison made his first visit to Microsoft's headquarters in the outskirts of Seattle, announcing a partnership with the company that had been competing with Oracle for over 30 years.

Currently, Oracle has established partnerships with Microsoft, Google, and Amazon, all of which allow Oracle's databases to run on their cloud infrastructure. Microsoft runs its Bing AI chatbot on Oracle's servers. Other major customers include Musk's AI company xAI and NVIDIA.

Ellison stated:

We believe that our cloud partnerships with AWS, Microsoft, and Google will drive the growth of our database business in the coming years.

For years, Ellison has described Oracle's database as "self-driving" to cater to the needs of autonomous vehicles (he was a board member of Tesla and had a close relationship with Musk) and artificial intelligence.

According to Ellison, Oracle's database does not require manual patching, does not experience downtime that requires human intervention, something that no other cloud provider can achieve.

Data Centers Built for Large Models

Some analysts believe that another advantage of Oracle may lie in the fact that the company entered the cloud computing field "late but timely," with many of its 162 data centers built in recent years specifically for the development of large models.

Oracle launched its cloud business in 2016, but its performance was not satisfactory, leading to a rebuild two years later.

Now, Oracle is investing billions of dollars in its cloud business to build 100 data centers. Oracle promises its customers that it will not promote other cloud services or proprietary chips like other major cloud service providers.

In response, Nick Frosst, co-founder of AI startup Cohere, said that Oracle is just building truly effective products, and Oracle is also an investor and cloud service provider for Cohere.

Furthermore, Oracle has not developed its own large models to compete with potential downstream customers, making it seen as a neutral and non-threatening player