Oracle's stock demonstrated resilience this week, recovering from an early dip to post a weekly gain ahead of its newly rebranded annual conference, now called AI World. The event, scheduled for next week in Las Vegas, is expected to highlight the company's aggressive push into artificial intelligence and provide updated financial projections driven by surging demand for its cloud infrastructure.
Key Takeaways
- Oracle's stock recovered from an early-week decline to finish the week with a net gain, showing stability before its major annual event.
- The company has rebranded its largest customer conference from "CloudWorld" to "AI World," signaling a strategic focus on artificial intelligence.
- Investors and analysts anticipate new financial targets at the conference, following a report of a nearly $500 billion revenue backlog fueled by AI contracts.
- Analysts remain divided, with some pointing to a stretched valuation and high costs, while others see significant growth potential from AI and cloud services.
Conference Signals Shift to AI
Oracle has officially renamed its largest annual customer gathering to AI World, a significant change from its previous name, CloudWorld. This move underscores the company's strategic pivot to capitalize on the booming demand for AI technologies.
The conference, set to take place in Las Vegas, is the first major event under Oracle's new leadership structure, which was announced last month. It follows a strong fiscal first-quarter report where the company revealed its backlog of contracted revenue had grown to nearly $500 billion.
According to company statements, this growth is largely driven by demand for cloud-based servers designed to train and operate complex AI algorithms. Analysts expect the event to detail how Oracle plans to integrate AI across its entire product line, from infrastructure to software-as-a-service (SaaS) applications.
Background: Oracle's Cloud Challenge
Oracle was a late entrant into the cloud computing market, which has long been dominated by Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. The company rebranded its conference in 2020 from OpenWorld to CloudWorld to emphasize its focus on Oracle Cloud Infrastructure (OCI). The recent surge in AI demand has provided Oracle with a critical opportunity to gain market share against these established competitors.
Volatile Stock Performance and Market Position
The week leading up to the conference was marked by volatility for Oracle's stock (ORCL). Shares initially declined following a report from The Information suggesting the company was experiencing slim profit margins on the cloud servers it rents to AI startups.
However, the stock rebounded later in the week. A 3.1% gain on Thursday, supported by positive analyst commentary, pushed the share price back above its 21-day moving average. On Friday, the stock briefly surpassed the $300 mark before settling around $296.40.
Despite the fluctuations, Oracle's stock ended the week with a solid gain. Year-to-date, the stock has rallied nearly 80%, though it has pulled back from its record high of $345.72, reached on September 10.
Oracle by the Numbers
- Year-to-Date Stock Gain: Approximately 80%
- Contracted Revenue Backlog (RPO): Nearly $500 billion
- Reported OpenAI Contract: $300 billion
- Previous Revenue Goal (FY 2029): $104 billion
- New Cloud Sales Projection (FY 2030): $144 billion (from Safra Catz)
Analyst Expectations and Financial Outlook
Financial analysts are closely watching AI World for new guidance on Oracle's financial trajectory. The company's massive revenue backlog, known as remaining performance obligations (RPO), has become a key focus for investors.
A significant portion of this backlog is reportedly tied to a partnership with OpenAI, the creator of ChatGPT, which includes a cloud contract valued at an estimated $300 billion.
"We expect Oracle to issue updated financial targets, especially after dropping a large RPO number and guiding for Oracle Cloud Infrastructure revenue to reach $114 billion in (fiscal year 2029)," wrote Brian White, an analyst at Monness Crespi Hardt, in a note to clients.
White maintains a neutral stance on the stock, citing concerns over a "stretched valuation, capital expenditures elevated, free cash flow negative, competition fierce, and the macro treacherous."
A More Bullish Viewpoint
Other analysts are more optimistic. Evercore ISI analyst Kirk Materne reiterated an outperform rating and raised his price target for Oracle stock from $340 to $350.
Materne believes the company could exceed current long-term forecasts. "The bottom line is that we expect Oracle could deliver some upside vs. our fiscal year 2030 revenue forecast ($200 billion seems reasonable) and confirm annualized EPS growth (fiscal year 2025-2030) of roughly 20%," he wrote.
He also anticipates that the conference will emphasize how Oracle's deep integration of AI can help businesses use their own trusted data to create value while maintaining governance and control.
The High Cost of AI Ambition
While the revenue potential from AI is substantial, investors are also weighing the significant costs required to meet this demand. Building out the necessary cloud infrastructure requires massive capital expenditures.
Some market observers have also raised questions about the complex web of investments and partnerships in the AI sector. Companies like OpenAI and Nvidia are central to a network of investment commitments and cloud contracts involving most of the major players in the technology industry.
Oracle's ability to manage these costs and convert its large backlog into profitable revenue will be a key factor for its long-term success. The upcoming AI World conference is expected to provide investors with a clearer picture of the company's strategy for navigating these challenges and opportunities.