Oracle (ORCL) Stock Analysis

Expectation was too high

Invesdea 💰 Investing Ideas
2 min readSep 13, 2023

Business Overview

Oracle was founded in 1977 and created the first commercial SQL database system. Oracle’s main products include Oracle Cloud Infrastructure (hyperscaler), Oracle Fusion Applications (SaaS, ERP), Oracle Database (database), and Oracle HCM Cloud (human resources management).

Quarterly Financial Results on 9/11/23

🏦 Revenue: $12.5B, +9% y/y

💸 Net Income: $2.42B, 19% of total revenue

🔸 Next Quarter Revenue Outlook: +5%-7% y/y

🔸 Cloud Revenue: $4.6B, +30% y/y

🔸 Cloud Infrastructure Revenue: $1.5B, +66% y/y

🔸 CEO: “Oracle Cloud Infrastructure revenue grew 66% in Q1, much faster than our hyperscale cloud infrastructure competitors,”

🔸 Larry Ellison: “Self-driving cars, molecular drug design, voice user interfaces — billions of dollars are being invested in AI. ”, “The largest AI technology companies and the leading AI startups continue to expand their business with Oracle for one simple reason — Oracle’s RDMA interconnected NVIDIA Superclusters train AI models at twice the speed and less than half the cost of other clouds.”

Bullish Opinions

🔸 Profitability: A net profit margin of 19% indicates the company’s finances remain healthy.

🔸 Future Markets: Hyperscaler and AI are still the hottest industries right now, as Oracle’s cloud infrastructure revenue was up 66% y/y this quarter. The long-term partnership between Oracle and NVIDIA continues to offer tremendous growth opportunities.

🔸 Switching Costs: Oracle’s products are often deeply integrated with enterprises’ software and hardware, leading to high switching costs.

Bearish Opinions

🔸 Growth: This quarter’s revenue growth is only 9% y/y, and the median growth for the next quarter is predicted to fall to 6% y/y, lower than the expected 8.4%. This rate suggests that previous investor expectations were overly optimistic. Oracle won’t see crazy growth as Nvidia did.

🔸 Valuation: Even after a more than 13% decline today, Oracle’s P/E Ratio is still at 35, and its PEG Ratio is above 3, which is still not low.

Conclusion: Neutral

Even with a 13% drop today, Oracle has risen over 30% this year. The valuation is still high. Although the AI business provides a new growth point for the company, it is still less than 10% of the total revenue. Meanwhile, other legacy businesses continue to decline.