Oracle: Co-CEO Appointment Should Deepen Synergy Between Cloud Infrastructure and Applications

Key Morningstar Metrics for Oracle

• Fair Value Estimate: $330.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

Oracle ORCL announced on Sept. 22 that Safra Catz will move to a board role after 11 years as CEO. Clay Magouyrk, president of Oracle Cloud Infrastructure, and Mike Sicilia, president of Oracle Industries, have been promoted to co-CEOs. The shares were up 4% in intraday trading.

Why it matters: We think the appointment shows Oracle’s dedication to fostering closer synergies between its cloud infrastructure and applications units. Despite recent explosive booking additions for OCI, the company is also leveraging artificial intelligence to reinvent its Oracle Cloud Applications offerings.

• Magouyrk joined OCI in 2014 and is one of its founding members. Sicilia, also an Oracle veteran, holds deep expertise in vertical applications, an area of strategic importance for OCA. We think both appointees are seasoned executives who are ready to lead Oracle’s next stage of growth.
• In our view, the immediate challenge the new co-CEOs need to tackle is balancing OCI and OCA’s investment needs. OCI should experience strong investment pressure to ramp up data center capacities, but integrating AI across applications also requires continued investment in OCA.

The bottom line: We maintain our $330 fair value estimate for wide-moat Oracle as we await more details about the new co-CEOs’ strategic vision and financial plans during the investor day in four weeks. We view the shares as fairly valued at the moment.

• While OCI is already a clear beneficiary of skyrocketing AI demand, we think there is much potential for AI to drive OCA’s growth, too.
• AI-based new features that unlock unique insights from enterprises’ private data residing in Oracle Database may become a new growth point for OCA, giving the stock additional upside potential.

Between the lines: Oracle announced that Larry Ellison will continue to serve as board chair and chief technology officer, which should provide continuity through the transition.