Oracle Corp. surged to a record high after the company said its cloud-computing business will continue its rapid growth in the coming fiscal year.
Cloud sales gained 54% in the fiscal fourth quarter to $4.4 billion, after a 45% jump in the previous period, Oracle said Monday in a statement. In the fiscal year ending May 2024, cloud revenue should increase at least as much as in the year that just ended, Chief Executive Officer Safra Catz said on a conference call after the results.
Oracle has focused on expanding its cloud infrastructure business to more forcefully compete with market leaders Amazon.com Inc. and Microsoft Corp., which have seen recent slowdowns. A boom in generative AI, which needs tremendous computing power, is boosting demand for Oracle’s cloud services, executives said. Generative AI startup Cohere said last week that Oracle was among its investors in a $270 million funding round.
Shares gained as much as 6.5% Tuesday in New York to $123.99. Oracle has rallied 42% in the year to Monday’s close, compared with the 32% rise in the iShares expanded software ETF.
“We see shares maintaining their recent positive momentum as the narrative of growing cloud momentum, partly fueled by AI demand, remains intact,” Raimo Lenschow, a Barclays analyst, wrote after the results. John DiFucci, an analyst at Guggenheim Securities, said the continued strength in the unit is abnormal given the current economic environment.
Cloud infrastructure revenue increased 76% to $1.4 billion in the period ended May 31, Austin, Texas-based Oracle said. Cloud application sales jumped 45% to $3 billion.
The revenue acceleration may fuel concerns about increased pressure on Amazon’s and Microsoft’s cloud offerings, Bloomberg Intelligence Analyst Anurag Rana said. “Oracle’s messaging of lower cost and superior features is bound to create concerns about the potential loss of market share, but we think it’s too early to sound alarm bells.”
More than $2 billion in cloud capacity has recently been contracted by companies doing large language model development such as Mosaic ML, Adept AI, and Cohere, Oracle Chairman Larry Ellison said in the statement. “Oracle’s Gen2 Cloud has quickly become the No. 1 choice for running Generative AI workloads,” he said. Separately, Oracle announced Tuesday morning that it plans to develop generative AI services in collaboration with Cohere.
Total sales increased 17% to $13.8 billion in the quarter. Analysts, on average, estimated $13.7 billion, according to data compiled by Bloomberg. Profit, excluding some items, was $1.67 a share, compared with the average estimate of $1.58.
“Both of our two strategic cloud businesses are getting bigger — and growing faster,” Catz said in the statement. “That bodes well for another strong year in FY24.”
Oracle’s other big bet — the acquisition a year ago of digital health records provider Cerner Inc., now called Oracle Health — generated $1.5 billion in the quarter. Oracle began cutting jobs in the division earlier this year after executives promised to improve profitability.
In the current period ending in August, cloud growth excluding Oracle Health will be about 29%, Catz said. Total revenue is expected to increase from 8% to 10%, she said. Analysts, on average, projected an 8% gain. Profit, excluding some items, will be $1.12 to $1.16 a share.
Much of Oracle’s cloud revenue is produced by business applications such as Fusion software for managing corporate finances and NetSuite’s enterprise planning tools, which are targeted at small- and mid-size companies. Fusion sales increased 26% in the quarter, compared with 25% growth in the previous period. NetSuite revenue jumped 22%, a decrease from 23% in the previous period.
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