Oracle (ORCL) is now seen as a rising star in cloud computing, particularly for AI developers like OpenAI. In fact, many analysts believe that the software company’s late entry into the cloud market may have worked in its favor. To understand this better, let us look at how Oracle is quickly emerging as an attractive provider for cloud computing, specifically when it comes to AI.
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Oracle’s Data Centers Optimized for AI Training
One of the key factors for ORCL in attracting clients is that its newer data centers are optimized for AI model training. Additionally, unlike some of its competitors, Oracle doesn’t create its own AI models, positioning itself as a neutral partner. As a result, this has led to collaborations with many big tech companies including Microsoft (MSFT), Google (GOOGL), and Amazon (AMZN), with Microsoft’s Bing AI chatbot even running on Oracle’s servers.
Moreover, many AI companies use Oracle’s cloud computing infrastructure to train large language models (LLMs), a data-intensive and costly process that has been lucrative for Oracle. However, many analysts believe that after training their LLMs, some of ORCL’s clients might move operations to larger cloud providers for broader service integration.
ORCL’s Founder Larry Ellison Is Optimistic about AI’s Potential
Despite this possibility, Ellison is optimistic about AI’s long-term potential, stating that the AI boom will continue for the next decade. He suggests that only a few large tech companies or even nations will compete for AI dominance. Furthermore, Ellison added that it won’t be cheap to compete in the AI race for a cutting-edge model, with an entry cost of around $100 billion over the next five years.
To further support this view, Oracle is building massive data centers, including one powered by small nuclear reactors, to support AI model training.
ORCL’s Q1 Report Highlights the Growth of AI Business
As evidence of this optimism, Oracle’s Q1 results highlighted the growth of its AI business, with cloud infrastructure revenue up 45% year-over-year. In support of this growth, Ellison emphasized that the company’s success in building large data centers is the key to its AI business growth. Indeed, he could be proved right, as a Morgan Stanley report projects that AI will account for over half of Oracle’s cloud revenue by 2027, up from 15% in FY23.
What Is the 12-month Forecast for ORCL?
Analysts remain cautiously optimistic about ORCL stock, with a Moderate Buy consensus rating based on 16 Buys and 13 Holds. Over the past year, ORCL has increased by more than 20%, and the average ORCL price target of $162.46 implies an upside potential of 4.2% from current levels.
