(Bloomberg) — Oracle Corp. reported better-than-expected bookings and announced partnership deals with technology rivals, boosting Chairman Larry Ellison’s efforts to redefine the software maker as a major competitor in the cloud computing business.
Bloomberg’s Most Read
The company, known for its database software, is focused on expanding its cloud infrastructure unit — which rents computing and storage capacity — to compete with Amazon.com Inc., Microsoft Corp. and Microsoft Corp. and Alphabet Inc.’s Google. Although this division produces a small portion of total sales, investors see it as Oracle’s main bet for future growth.
Oracle shares jumped 8.9% in premarket trading in New York on Wednesday. If the gains hold, the stock is expected to reach its highest level on record.
Over the past two quarters, “Oracle has signed the largest sales contracts in our history – driven by enormous demand for training large AI language models on Oracle Cloud,” CEO Safra Catz said Tuesday in a statement.
Revenue growth will increase by double digits in the current fiscal year ending May 2025, fueled by strong demand for artificial intelligence workloads, Catz said. Growth is expected to accelerate throughout the year as “cloud unit capacity begins to catch up with demand,” she added.
Oracle also announced a new agreement to make its namesake database available on Google’s cloud infrastructure. A similar deal with Microsoft, announced in late 2023, “will turbocharge the growth of our cloud database,” Ellison said in a separate statement.
OpenAI, which has received billions in funding from Microsoft, will use Austin-based Oracle’s cloud infrastructure for “additional capacity,” the companies said in a statement. Oracle Cloud has developed a successful reputation with generative AI startups – the company has praised customers including Reka, MosaicML, and Elon Musk’s xAI. Artificial intelligence technology needs enormous computing power to function.
“The world’s largest cloud companies and the world’s most successful and successful AI companies choose to use Oracle Cloud services and data centers,” Ellison said in a conference call after the company released its fiscal quarter results. quarter.
Shares rose to a high of $135.28 in premarket trading on Wednesday after closing at $123.88 in New York. Shares have jumped nearly 18% this year.
‘Undeniable’ moment
The momentum in Oracle’s cloud infrastructure business “is undeniable and the OpenAI announcement creates another positive data point in AI,” Evercore ISI analyst Kirk Materne wrote.
Bloomberg Intelligence analyst Anurag Rana said demand to run AI workloads in Oracle’s cloud computing data centers “could catapult it to become the fourth largest cloud provider.”
Catz said on the call that the cloud infrastructure unit will grow more than 50% in the current fiscal year.
Oracle said total remaining performance obligations, a measure of future pre-sales, rose 44% to $98 billion in the period ended May 31, far exceeding the average estimate of $73.9 billion. .
Revenue from the cloud unit that rents computing power and storage rose 42% to $2 billion, the company said in a statement. Analysts, on average, projected US$1.97 billion, according to data compiled by Bloomberg.
Total revenue increased 3.3% to $14.3 billion, compared to the average estimate of $14.6 billion. Earnings, excluding certain items, were $1.63 per share. Analysts expected $1.65.
Software lull
Dismal results from peers like Salesforce Inc. and Workday Inc. in recent weeks have fueled investor anxiety that technology budgets are being diverted from applications software to artificial intelligence tools. Sales in Oracle’s cloud applications business, including its Fusion applications for corporate finance, rose 10% to $3.3 billion. This represents a slowdown in relation to the growth of around 14% that the unit recorded in recent quarters and below analysts’ estimates.
The new partnerships will likely accelerate the growth of Oracle’s cloud infrastructure business, which could help offset the slowdown in applications, Rana wrote in a note after the earnings release.
Oracle’s results were hurt by its healthcare unit, which includes Cerner, the electronic health records company that Oracle acquired in June 2022 for $28 billion. The company is currently focused on transitioning its legacy software business to the cloud, although it has faced setbacks such as customer departures and the renegotiation of a major federal contract.
Cerner hurt revenue growth in fiscal 2024 by 2%, Catz said on the call. The company, however, will no longer release Cerner’s financial results during earnings, “because it is now operating in growth mode,” she said.
Catz also said Oracle will abandon its advertising business, which generated just $300 million in the fiscal year ending May 31.
(Updates with pre-market shares)
Bloomberg Businessweek Most Read
©2024 Bloomberg LP
