This Analyst Says Oracle Is Still in the Early Innings of Its AI Success Story. Should You Buy ORCL Stock Here?

<p>Oracle's (ORCL) current run seems more substantial than a normal "post-earnings pop." The company, which announced fiscal third-quarter results on March 10, demonstrated its ability to grow much faster than investors have become accustomed to while maintaining profitability at the same time. This is a big deal for a company that, until now, was more of a mature enterprise software stock than a true winner in the AI infrastructure space.</p>
<p>Oracle reported fiscal third-quarter revenue of $17.2 billion, a 22% increase from the prior year, as well as a 21% increase in non-GAAP EPS to $1.79. The company's cloud revenue came in at $8.9 billion, with cloud infrastructure revenue increasing 84%. This is the context for D.A. Davidson's Gil Luria, who maintains a positive view on the company's stock.</p>
<p>ORCL stock may not be the only one benefiting from the current market volatility, as the company's latest quarter provided investors with what they had been waiting a very long time for: hard evidence that the current AI-driven demand trend is indeed accelerating revenue growth. The more important point, however, is that the company's management did deliver a good quarter and raised its fiscal 2027 revenue estimate to $90 billion.</p>
<p>About Oracle Stock</p>
<p>Oracle is a leading company in the field of enterprise software, databases, and cloud infrastructure. The company, which is headquartered in Austin, Texas, currently boasts a market capitalization of around $457.3 billion, which makes it a mega-cap stock. Although Oracle still makes a lot of sense as a database company, the question on investors' minds is whether Oracle Cloud can become a true large-scale AI compute platform.</p>
<p>Currently, with ORCL stock trading at around $155.60, it is still quite a way off its 52-week high of $345.72, even with its recent bounce following earnings results. This places ORCL in a rather interesting position. While ORCL stock has risen by 3.5% in the last five trading days, it has still been a rather more volatile stock compared to the general market. In comparison, the S&amp;P 500 Index ($SPX), for example, has risen by about 19% in the last 52 weeks, with ORCL's current position more a matter of whether people believe in the current AI boom than a matter of compound interest on a more consistent basis.</p>
<p>In terms of valuation, ORCL is not particularly cheap, especially in a legacy software sense, yet nor is it particularly expensive if you are expecting this newfound growth trajectory for the firm. Currently, ORCL trades on a forward price/earnings ratio of 27.2x, as well as an 8.17x price/sales ratio, based on the current snapshot provided here.</p>
<p>This is clearly not a particularly cheap valuation, yet it is a more reasonable valuation if you are expecting double-digit earnings growth for ORCL in the coming years, as well as its ability to leverage its enormous software backlog into cloud-based software with high margins. ORCL currently has a quarterly dividend of $0.50, or $2.00 on an annual basis, with a yield of about 1.3% based on its current stock price, with its next dividend payable on April 24, 2026, with a record date of April 9, 2026.</p>
<p>Oracle Beats on Earnings</p>
<p>Oracle’s Q3 results were strong almost everywhere that mattered. Revenue was $17.2 billion, beating expectations. EPS was also strong at $1.79, beating expectations. Cloud services grew 44%, while OCI grew 84%. This means that demand for Oracle’s infrastructure solution is no longer hypothetical. And to top it all off, non-GAAP operating income grew 19%. This means that Oracle is growing its business without compromising margins.</p>
<p>But the really interesting number was the company's remaining performance obligations, which came in at $553 billion, a 325% increase year-over-year (YoY), with a $29 billion increase sequentially. Again, much of that was due to the large-scale deals the company signed for its AI business, with the company's management stating that many of the deals were structured so that Oracle didn't have to invest additional capital for the related hardware, as the customers were prepaying or providing the GPU themselves. This was a concern for the market because one of the biggest concerns for Oracle was whether the company would have to overextend its balance sheet for the buildout of its AI business.</p>
<p>But Oracle's guidance was good as well. The company guided Q4 revenue growth of 19-21%, cloud growth of 46-50%, and non-GAAP EPS of $1.96 to $2.00. Oracle's fiscal 2026 revenue was reaffirmed at $67 billion, as was its capital expenditures number of $50 billion. However, the company did increase its fiscal 2027 revenue estimate from $80 billion to $90 billion. The only other interesting item was Oracle's statement that its use of AI code generation tools was making its software teams smaller, faster, and more productive, which could become a lesser-known driver for the company's margins going forward.</p>
<p>What Do Analysts Expect for ORCL Stock?</p>
<p>It appears that Oracle's earnings are causing a positive reaction from analysts as well, as the company's stock now has a "Strong Buy" rating consensus, according to Barchart, with the average analyst rating increasing to 4.50 from 4.40 a month ago. This may not seem like a large increase, but the fact that the average rating is increasing is important as the company's stock is reacting positively to its earnings.</p>
<p>On the date of publication, Yiannis Zourmpanos had a position in: ORCL. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com</p>