Oracle executives gave ambitious new long-term revenue and earnings targets late Thursday in a meeting with analysts. But Oracle stock stumbled in early trading Friday.
Oracle projects total revenue will grow an average of 31% annually over its next five years to reach $225 billion in sales by its fiscal year 2030, executives told analysts late Thursday. The tech giant also expected earnings-per-share to increase to $21-per-share by fiscal 2030, an average of 28% growth year-over-year.
The forecast underscores the momentum that has powered the 47-year-old database software titan toward its best year on the stock market this century. Oracle stock had rallied more than 85% heading into its AI World conference in Las Vegas. The company provided the projections in an analyst day event that closed out the conference.
Guggenheim analyst John DiFucci wrote that the event underscored "the massive opportunity ahead of Oracle" led by deals to train AI systems on its cloud infrastructure business.
"Importantly, the company provided growth and margin profiles across the different components of IaaS (infrastructure-as-a-service) revenue where it was highlighted that AI infrastructure deals have 30%-40% gross margins over the life of the contract, which is much higher than some have speculated," DiFucci wrote.
The analyst day event comes roughly a month after Oracle stock soared following its fiscal first-quarter report. The tech giant reported a swelling backlog of $455 billion in contracted revenue, driven by demand for Oracle Cloud Infrastructure from companies looking to train and operate AI algorithms.
Barclays analyst Raimo Lenschow said the fiscal 2030 revenue forecast was ahead of Wall Street projections that had already "increased sharply post the Q1 results in September."
Question On AI Cost For Oracle
Despite the positive analyst views, Oracle stock fell more than 2% to 306 in premarket action in the stock market today. Shares closed Thursday 3% higher.
While the event did offer a bullish long-term profit outlook, Oracle did not provide further detail on its capital expenditures plans, noted Jefferies analyst Brent Thill.
"Questions remain about Oracle's capex requirements to meet growing demand, as there was no forward-looking commentary on capex at the analyst day," Thill wrote to clients Thursday. "Capex will need to ramp in line with OCI revenue growth, raising concerns about Oracle's financing options to support this expansion."
Oracle must scale-up its data center infrastructure to serve its AI cloud demand. Analysts project that Oracle will have negative free-cash-flow totaling more than $26 billion over its next three fiscal years, according to FactSet consensus analyst estimates. Oracle raised $18 billion through a corporate bond sale last month. Investors expect the company will likely require further debt to fund its AI ambitions.
"Looking forward, (Oracle) stock likely consolidates recent gains in coming quarters as investors digest recent news flow and gain comfort with management's ability to generate strong operating income growth even as the shift to a capex centric business model alters the current margin profile," Stifel analyst Brad Reback wrote Friday.
Guggenheim's DiFucci added that financing for Oracle's capex needs was likely not addressed at the event because the company's decision on how to raise the funding could be a year or more away.
"But we believe the company's profitability profile would be very similar regardless of whether they pursue all debt, vendor financing, or even an equity raise," the analyst wrote.
High Expectations For Oracle Stock
Meanwhile, Oracle did address another ongoing investor concern: Its reliance on OpenAI. A large portion of Oracle's revenue backlog is driven by its growing partnership with the startup behind ChatGPT, including a reported $300 billion cloud contract.
"I know some people are questioning sometimes, 'Hey, is it just OpenAI?'" Oracle Chief Executive Clay Magouyrk said at the analyst meeting, according to a FactSet transcript. "The reality is, we think OpenAI is a great customer, but we have many customers."
Magouyrk, who took over as a co-CEO last month, said Oracle had booked seven cloud deals from four different customers worth $65 billion since the start of its November-ending fiscal Q2. That includes a deal with Facebook parent Meta Platforms.
Evercore ISI analyst Kirk Materne said the event showed Oracle is "firing on all cylinders."
Still, Oracle stock already rallied nearly 30% since Oracle's fiscal Q1 report last month.
"Expectations were high coming into the event, which helps explain the somewhat muted reaction to the very strong outlook," Materne said.
