Oracle (NYSE:ORCL) stock saw a significant uptick of over 14% in Monday’s after-hours trading following the release of stronger-than-expected Q3 earnings and management’s upbeat outlook for the company’s artificial intelligence (AI)-led products. ORCL’s leadership expressed confidence that the company could continue to win large contracts due to the demand for its Gen2 AI infrastructure.
Oracle provides an integrated stack of cloud applications and cloud platform services. Moreover, ORCL stock has appreciated over 36% in one year.
AI Demand Drives ORCL’s RPO to Record High
Oracle’s remaining performance obligation (RPO), a key indicator of forthcoming revenue growth, increased by 29%, surpassing $80 billion in Q3, an all-time high. The jump in RPO reflects the increase in large new cloud infrastructure contracts signed during the third quarter.
Management highlighted that the demand for its Gen2 AI infrastructure substantially exceeds supply, despite the rapid expansion of new and existing cloud data centers. Furthermore, Oracle’s leadership projects that 43% of the current $80 billion RPO will be recognized as revenue over the next four quarters, adding stability to its top line. They also expect the Gen2 Cloud Infrastructure business, which achieved a remarkable 53% growth in Q3, to maintain its hypergrowth trajectory for the foreseeable future.
The company’s total revenue is expected to grow by 6-8% in Q4. Moreover, total cloud revenue is expected to increase by 22% to 24%. However, a higher tax rate will pressure its EPS.
Is Oracle a Buy, Sell, or Hold?
Oracle’s revenue growth rate is expected to accelerate as supply constraints ease and it expands capacity.
With 11 Buy and seven Hold recommendations, Oracle stock sports a Moderate Buy consensus rating. Analysts’ average price target on ORCL stock stands at $127.42, implying the stock could rise by 11.64% from current levels.
