Oracle’s stock (ORCL) has gained remarkable momentum, soaring 60% over the past year, marking one of its strongest year-long performances since the 2000 dot-com boom. Despite this terrific rally, which might imply that the stock has run ahead of itself, I believe the cloud and enterprise software solutions provider is still reasonably valued, with a potential for further gains. Specifically, Oracle’s revenues and earnings are likely to sustain an acceleration in the coming years, driven by surging growth in its cloud segments. Therefore, I am bullish on the stock.
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Cloud Surge Propels Strong Q1 2025 Results
Oracle’s most recent Q1 2025 results highlighted the company’s growing momentum, particularly in its cloud divisions, strengthening my bullish view of the stock. Specifically, Oracle kicked off Fiscal 2025 on a high note, with record Q1 revenue of $13.3 billion, up 7% year-over-year. While the 7% year-over-year increase may not seem especially impressive at first glance, the real story lies within the company’s cloud divisions, which posted phenomenal growth.
Oracle’s cloud revenue, combining IaaS and SaaS, increased by 21%, reaching $5.6 billion. Cloud Infrastructure (IaaS) revenue soared by 45%. Furthermore, Cloud Application (SaaS) revenue grew by 10%, driven in part by solid adoption of Fusion Cloud ERP and NetSuite, both of which saw double-digit gains of 16% and 20%, respectively. The strong gains in Oracle’s cloud infrastructure segment can be attributed to the expanded adoption of Oracle Cloud Infrastructure (OCI) and critical partnerships. These included a noteworthy multi-cloud agreement with AWS, which will see Oracle’s latest database tech integrated into AWS data centers.
I believe these developments are an essential differentiator that helped Oracle capture more cloud workloads. More importantly, Oracle’s growth prospects appear increasingly potent as cloud services constitute an ever-larger portion of its revenue, eclipsing its traditional software license sales and hardware business. In my view, this ongoing transition away from its traditional on-premise offerings positions Oracle for sustainable top-line acceleration.
Profitability Also Gets a Boost from Cloud Divisions
Besides boosting the top line, Oracle’s expanding cloud divisions have driven significant improvements in profitability, further reinforcing my bullish outlook. In Fiscal Q1, the GAAP operating income margin rose to 30%, and adjusted operating income climbed to 43%, up from 26% and 41%, respectively. This margin expansion clearly highlights the growing impact of high-margin cloud revenues on Oracle’s overall revenue mix. In the meantime, management’s continued focus on automation and efficiency, such as leveraging autonomous databases and optimizing cloud data center operations, also contributed to lower operating costs and benefited margins.
These margin gains, in turn, translated into a notable boost in Oracle’s earnings. GAAP EPS rose by 20%, while adjusted EPS climbed by 17%. These figures far outpaced revenue growth, showing how Oracle can leverage the ongoing shift in its sales mix to drive outsized bottom-line results. As cloud revenues grow and make up an even more significant portion of Oracle’s overall revenue, the rather impressive margin gains and EPS growth will likely continue – especially if revenue growth accelerates further, as expected.
Wall Street’s Estimates and Valuation
Wall Street analysts are also projecting an acceleration in Oracle’s revenue growth. Specifically, consensus estimates forecast revenue growth of 9.7% in Fiscal 2025, rising to 12.0% in Fiscal 2026 and 14.3% in Fiscal 2027. As far as I can tell, these growth estimates are based on the expectation that Oracle’s cloud initiatives, including partnerships with major hyperscalers like Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL)(GOOG), will continue to drive additional revenue.
Similarly, analysts anticipate a steady climb in Oracle’s EPS, predicting growth rates of 13.1%, 13.7%, and 16.4% for Fiscal years 2025, 2026, and 2027, respectively. These forecasts align well with Oracle’s expected revenue acceleration and improvement in margin trends.
Hence, despite the stock’s extended rally over the past year, I believe Oracle is fairly valued, trading at just over 29 times this year’s expected EPS. Given the forecasted acceleration in revenue and earnings growth, I don’t think the current multiple represents a worrisome premium. In fact, considering that analysts have historically been conservative when assessing Oracle, the stock could have further upside from current levels as the company’s cloud transformation continues to unfold.
Is ORCL Stock a Buy?
Wall Street analysts appear a bit more cautious about Oracle’s future prospects. Specifically, Oracle stock features a Moderate Buy, with recent analyst ratings of 19 Buys and 13 Hold ratings over the past three months. However, at $178.04, the average ORCL stock price target implies a 1.86% downside potential.
For the best guidance on buying and selling ORCL stock, look to Brent Bracelin. He is the most accurate and profitable analyst covering the stock (on a one-year timeframe), boasting an average return of 40.21% per rating and a perfect success rate score of 100%.
Final Thoughts
In conclusion, Oracle’s outstanding cloud-driven growth, expanding margins, and, therefore, even more impressive earnings growth clearly outline its ongoing transformation and promising future. With Oracle’s cloud solutions showing rapid adoption by hyper-scalers, I believe the company remains well-positioned to sustain its upward trajectory in its top and bottom lines. Therefore, despite this past year’s protracted rally, which may raise concerns about the stock’s valuation, I find Oracle fairly priced at today’s earnings multiple, with room for upside as the current narrative materializes.
