Tuesday, Wolfe Research increased its price target on Oracle Corporation (NYSE:ORCL) to $150 from $130, maintaining an Outperform rating. The firm acknowledged the company's robust performance in the face of skepticism regarding the demand for Oracle Cloud.
Oracle reported a significant 29% year-over-year growth in Remaining Performance Obligations (RPO), with a sequential increase of 23%. The $15 billion sequential addition to RPO was highlighted as nearly triple the incremental additions of the past five third quarters combined.
Oracle's management reaffirmed its fiscal year 2026 targets, suggesting some may even be conservative. This confidence is partly attributed to several substantial long-term deals. The discussion has now shifted from questioning the demand for Oracle's services to whether the company can scale its supply quickly enough.
Capital expenditures, which were slightly lower in the third quarter due to timing, are expected to nearly double in the fourth quarter and grow by more than 35% in fiscal year 2025 to approximately $10 billion.
In the recent quarter, Oracle posted revenues of $13.3 billion, marking a 7.1% increase. The company also reported an operating margin of 43.6% and earnings per share (EPS) of $1.41. Oracle's Infrastructure-as-a-Service (IaaS) saw a 49% year-over-year growth, and Oracle Cloud Infrastructure (OCI) grew by 52% year-over-year. These figures met expectations, reflecting strengthened demand and accelerating win rates.
Despite reduced guidance for fourth-quarter cloud revenue, the adjustment was not due to GPU capacity issues but rather the challenging comparison with previous quarters and the rate at which Oracle can expand its data centers. Oracle emphasized its strong partnership with NVIDIA (NASDAQ:NVDA) and noted that while data center build-outs have taken longer than expected, the pace has recently increased to the fastest in the company's history.
Looking ahead, the firm anticipates that Oracle's revenue, excluding Cerner (NASDAQ:CERN), will significantly accelerate over the next two years compared to the past two.
Feedback suggests that the IaaS segment could approach a 50% growth rate by fiscal year 2025, surpassing the current consensus of mid-to-low 40s. Wolfe Research revised its long-term projections for Oracle, citing expectations for accelerated top and bottom-line growth over the next two years, leading to the increased price target of $150.
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