Up 11% In The Last Trading Session, What To Expect From Oracle Stock?

Oracle’s stock (NYSE: ORCL) has gained approximately 21% YTD as compared to the 7% rise in the S&P500 index over the same period. Further, the stock rose by 11.7% yesterday vs 1% in the S&P500. It came after the ORCL outperformed the earnings estimates in Q3 2024. The company expects to enjoy a strong contract pipeline as the demand for its Gen2 AI infrastructure exceeds the supply. In addition, it also mentioned a cloud-infrastructure contract with Nvidia and is likely to make some more joint announcements next week. Overall, at its current price of $128 per share, it is trading 2% below its fair value of $130 – Trefis’ estimate for Oracle’s valuation.  

Amid the current financial backdrop, ORCL stock has seen extremely strong gains of 100% from levels of $65 in early January 2021 to around $130 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. Admirably, ORCL stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 35% in 2021, -6% in 2022, and 29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ORCL see continued outperformance?

The technology giant posted total revenues of $13.3 billion in Q3 2024 – up 7% y-o-y. It was primarily driven by a 12% increase in the cloud services & license support revenues, partially offset by a 3% drop in the cloud license & on-premise license segment. On the cost front, the operating expenses as a % of revenues decreased from 74% to 72% in the quarter. Overall, the net income increased 27% y-o-y to $2.4 billion. 

The top line improved 7% y-o-y to $38.7 billion in the first nine months of FY 2024. It was mainly driven by a 12% growth in the cloud services & license support revenues, somewhat offset by an 8% decline in the hardware segment and an 11% decrease in the cloud license & on-premise license unit. Further, the operating expenses as a % of revenues witnessed a favorable drop from 75% to 72%. Altogether, the net income grew 41% y-o-y to $7.3 billion. 

Moving forward, we expect the same trend to continue in Q4 FY2024. All in all, Oracle revenues are forecast to touch $53.4 billion in FY2024. Further, ORCL’s net income margin is likely to improve in the year. It will lead to an annual GAAP EPS of $4.01, which coupled with a P/E multiple of just above 32x will lead to a valuation of $130.

[1] Returns as of 3/13/2024
[2] Cumulative total returns since the end of 2016

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