Oracle Earnings: Strong Booking Dynamics Lead the Way for Future Cloud Revenue Growth

Key Morningstar Metrics for Oracle

• Fair Value Estimate: $184.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Oracle’s Earnings

Oracle ORCL reported third-quarter results slightly below our expectations. Total revenue rose by 8% in constant currency to $14.1 billion, maintaining a stable growth trend similar to previous quarters. However, Oracle’s remaining performance obligations jumped to $130 billion in the quarter. The $33 billion net RPO addition is the largest in the company’s history, doubling total RPO in just two years. Thanks to strong booking dynamics, we are raising our fair value estimate to $184 per share from $172 as we incorporate a higher revenue growth outlook in the near term. Shares currently look moderately undervalued to us.

Oracle Cloud Infrastructure remains the main growth driver for the company, with quarterly revenue up 51% in constant currency to $2.7 billion. Just like competing hyperscalers, OCI is enjoying a strong tailwind in artificial intelligence, with demand continuing to outstrip supply. The business is on track to record $10 billion in annual revenue in fiscal 2025, and we expect an additional $5 billion of revenue growth in fiscal 2026 as component delays ease. With Oracle bringing more data centers online, OCI should continue to expand its market share in the cloud infrastructure space over the next few years.

Cloud database is another bright spot for the quarter, with revenue growing 28% year over year. We like Oracle’s strategy of bringing its database to other cloud service providers, as it facilitates a smoother process for traditional on-premises Oracle database users bringing their data workflows to the cloud. The company also plans to expand its partnership by adding 40 database cloud regions, which should reinforce the strong switching costs Oracle’s database system boasts.