Oracle (ORCL) began Fiscal 2025 on a high note, posting impressive financial results. The enterprise software, cloud, and database company announced strong revenue growth powered by cloud services and strategic SaaS applications. Oracle’s profit was even stronger, with an expansion in margins driving earnings growth. Going forward, Oracle is well-positioned to grow in the AI and large language model (LLM) space. The combination of strong earnings and future growth potential make me bullish on ORCL stock.
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Revenue Growth Driven by Cloud Services
Oracle’s Fiscal Q1 results reinforced my bullish outlook for the stock. The company reported strong top-line growth, with revenues of $13.3 billion, a 7% increase year-over-year. Oracle’s cloud services were the primary growth driver, with total cloud revenue (SaaS and IaaS combined) climbing 21% to $5.6 billion. Cloud infrastructure (IaaS) revenue surged by 45% while SaaS revenue rose 10%.
During the earnings call, Oracle CEO Safra Catz highlighted that demand for the company’s cloud services continues to outstrip supply, with applications such as Fusion Cloud ERP and NetSuite Cloud ERP performing exceptionally well. Fusion Cloud ERP’s revenue grew 16% and NetSuite increased 20% from a year earlier. The company is in the process of migrating Fusion and NetSuite to an autonomous database that will help eliminate the need for human labor.
Management also pointed out that significant multi-cloud agreements, including Oracle’s recent partnership with Amazon (AMZN) Web Services (AWS), helped drive database growth. Executives stressed that these partnerships will help expand Oracle’s market share. While Oracle’s 7% revenue growth may seem modest compared to the rates posted by some of its peers, the company’s cloud segment is thriving.
Oracle’s Margins and Profitability Have Grown
Oracle’s latest profit was even more impressive than its sales, boosting my bullish opinion of the stock. The company’s adjusted operating income grew 13% to $5.7 billion, with adjusted operating margins of 43%, up from 41% a year ago. Adjusted net income came in at $4 billion, up 18% from the previous year.
The margin expansion was driven by several factors. An ongoing transition to more autonomous systems decreased labor costs and minimized human error, contributing to improved margins. Pursuing automation in data center management helped streamline operations and reduce costs. This operating expense discipline, including careful resource management, contributed to Oracle’s success.
Rising Demand for Oracle
Beyond the latest financial results, I am also bullish on this stock as it’s clear to me that Oracle’s involvement in AI and large language models will prove to be a key growth catalyst. Oracle is heavily investing in data centers to support AI training at scale. The largest of these data centers, boasting 800 megawatts, is packed with NVIDIA (NVDA) microchips and processors designed to train AI models.
Oracle plans to construct even larger facilities, some of which will be powered by modular nuclear reactors, to meet rising demand for AI training infrastructure. The training of AI models requires immense computational resources and Oracle is positioning itself as a leader in this space.
The company’s Exadata and RDMA networks allow its customers to easily train and deploy AI models across cloud platforms. This technology makes Oracle’s offerings highly scalable, giving it a competitive edge in AI training. Most companies cannot afford, or do not have the expertise, to build their own models. They will therefore rely on Oracle and a handful of other big players in the cloud space to deliver at scale. This fact should fuel Oracle’s continued growth in coming years.
Is ORCL Stock a Buy or Sell?
Wall Street’s view on ORCL stock remains bullish. There’s currently a “Moderate Buy” consensus rating on the stock based on 16 Buy and 13 Hold recommendations assigned in the past three months. At $162.46, the average ORCL stock price target implies 4.21% upside potential.
If you’re wondering which analyst to follow concerning ORCL stock, the most profitable analyst (on a one-year timeframe) is Siti Panigrahi from Mizuho Securities, with an average return of 22.79% per rating and a 100% success rate.
Conclusion
Oracle’s Fiscal 2025 started with strong financial results that were driven by growth across its cloud services and SaaS applications. The company’s emphasis on automating processes and reducing costs has boosted profitability, while strategic partnerships are expanding its market reach.
In addition to the strong earnings print, Oracle is likely to continue growing its sales and profits due to the company’s ongoing investments in AI and large language model infrastructure. The company is one of the few key players who can meet demand in this rapidly evolving space. With demand for AI training growing, Oracle appears set-up for continued success. For these reasons, I’m bullish on Oracle’s stock.
