Oracle's AI-Driven Cloud Infrastructure Surge Positions It for Potential $1 Trillion Valuation

1 Unstoppable Stock That Could Join Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla in the $1 Trillion Club | The Motley Fool

Oracle is fast becoming a leader when it comes to building data centers for artificial intelligence development. The U.S. economy has an incredible track record of producing the world's most valuable companies. United States Steel became the first-ever $1 billion company in 1901, and 117 years later in 2018, Apple became the first company in the world to reach a valuation of $1 trillion. Apple is now worth over $3.7 trillion, and six other technology companies have joined it in the trillion-dollar club: Microsoft, Amazon, Alphabet, Meta Platforms, Tesla, and Nvidia. But I think another one could soon earn its membership. Oracle (ORCL -1.10%) was founded in 1977 and it has participated in almost every technological revolution ever since. Now, it's quickly becoming a leader in artificial intelligence (AI) data center infrastructure, which could catapult the company to a $1 trillion valuation in under a decade. Oracle's market capitalization is currently $492 billion, so investors who buy its stock today could double their money if it does join the trillion-dollar club. Large language models (LLMs) are at the foundation of every AI chatbot and software application. Developers keep building larger LLMs to make AI software "smarter," but it's a very expensive exercise that requires data centers filled with thousands of graphics processing units (GPUs). Nvidia supplies the world's most powerful GPUs for developing AI. The more of them a developer can access, the more data their LLMs can ingest and process. The Oracle Cloud Infrastructure (OCI) Supercluster technology allows developers to scale up to 65,000 Nvidia H200 GPUs, which is the highest number in the industry. But Oracle is about to go a step further. It's currently building new clusters that will allow developers to use up to 131,000 of Nvidia's latest Blackwell GPUs. OCI's random direct memory access (RDMA) technology is also much faster than traditional Ethernet networks when it comes to moving data from one point to another. Since most developers rent computing capacity on a per-minute basis, faster processing translates to substantial cost savings. That's why Oracle has attracted leading AI start-ups like xAI, OpenAI, Cohere, and more. During its fiscal 2025 second quarter (which ended Oct. 31), Oracle said GPU usage was up by a whopping 336% compared to the year-ago period, which highlights how quickly demand is climbing for AI infrastructure. The company currently has 98 data center regions in operation, but it plans to build another 1,000 to 2,000 over the long term to meet that demand. Oracle generated $14.1 billion in total revenue during the second quarter, which was a 9% increase from the year-ago period. But OCI revenue, specifically, soared by a whopping 52% to a record $2.4 billion. That was the fastest growth rate in a year, and it marked the second consecutive quarter of acceleration after a brief dip: Simply put, OCI revenue would be growing even faster if it had more data centers up and running. Even though the company is building them as quickly as possible, it's still struggling to meet demand. That's part of the reason Oracle's remaining performance obligations (RPOs) jumped 50% year over year to $97 billion during Q2. RPOs are like an order backlog that should convert into revenue in the future once Oracle can deliver the agreed-upon services. CEO Safra Catz said RPOs will climb further from here, citing a recent deal Oracle signed with Meta Platforms. Meta developed the world's most popular open-source LLMs, called Llama, which have been downloaded more than 600 million times. The company will shift some of its training workloads to Oracle's infrastructure, and the two companies will collaborate to build AI agents using Llama. It's a huge win for Oracle considering Llama 4 could be the most advanced model in the industry when it launches next year (according to Meta CEO Mark Zuckerberg). Oracle has generated $4.09 in earnings per share (EPS) over the last four quarters, so based on its stock price of $177.74 as of this writing, it trades at a price-to-earnings (P/E) ratio of 43.4. That isn't exactly cheap considering the Nasdaq-100 technology index trades at a P/E ratio of just 33.9. However, Oracle grew its EPS by 24% during Q2, which was the fastest pace in almost a year. The company's data centers are highly automated, so they are incredibly cheap to operate and, therefore, carry high profit margins. As more of them come online, economies of scale should result in very strong growth in Oracle's earnings. Mathematically speaking, Oracle's market capitalization could cross $1 trillion within 10 years if it grows its EPS by 7.3% annually (assuming its current P/E ratio remains constant). Considering the company plans to expand its data center footprint tenfold from here, I think its EPS growth is more likely to accelerate rather than decelerate in the coming decade. Therefore, 10 years is a very conservative time frame for Oracle to join the $1 trillion club. It could get there in less than four years if it maintains EPS growth of at least 20%.

Artificial Intelligence (AI) Cloud Spending Is Set to Surge Once Again in 2025. Here's 1 Stock to Buy Before That Happens. | The Motley Fool

Oracle (ORCL -1.10%) has been a solid performer on the stock market so far this year with impressive gains of 80% as of this writing. But its impressive rally has come to a halt following the release of the company's fiscal 2025 second-quarter results (for the three months ended Nov. 30) on Dec. 9 as its numbers fell shy of Wall Street's expectations. Shares of the company that has witnessed a nice acceleration in its business thanks to the booming demand for its cloud infrastructure to serve artificial intelligence (AI) workloads were down more than 8% in pre-market trading on the day following its earnings release. However, a closer look at Oracle's performance last quarter and the healthy growth that the company recorded in a key metric suggest that investors may be missing the bigger picture. Let's take a closer look at Oracle's numbers in this article and check why buying this stock right now could turn out to be a smart move for 2025, as well as the long run. Oracle's revenue in fiscal Q2 increased 9% year over year to $14.1 billion, while its non-GAAP earnings jumped by 10% to $1.47 per share. Analysts, however, were looking for $14.11 billion in revenue along with earnings of $1.48 per share. It is worth noting that Oracle's top line came in at the higher end of management's guidance range as the company was expecting revenue to increase between 7% and 9% for fiscal Q2. Its bottom line is also at the midpoint of the guidance issued in September. However, the robust demand for Oracle's cloud infrastructure, which is being rented by companies to train and deploy AI models, is probably the reason why Wall Street was expecting slightly faster growth from the company. But then, investors should not forget that Oracle's revenue pipeline improved at an incredible pace once again last quarter. The company's remaining performance obligations (RPO), which is the total value of a company's contracts that are yet to be fulfilled, increased by an impressive 50% year over year in fiscal Q2 to $97 billion. The healthy growth in this metric is a clear indication that demand for Oracle's cloud infrastructure remains strong as more customers are signing up to rent its infrastructure-as-a-service (IaaS) offering to fulfill their AI needs. Oracle management said during the company's latest earnings conference call that it witnessed "record" AI demand that led to a 52% year-over-year increase in its cloud infrastructure revenue last quarter to $2.4 billion. It is also worth noting that Oracle could have generated higher revenue from its cloud infrastructure business, but the demand in this segment was higher than supply. After all, the consumption of Oracle's cloud infrastructure powered by graphics processing units (GPUs) from the likes of Nvidia increased by a massive 336% last quarter. Not surprisingly, Oracle is focused on expanding its cloud infrastructure, with 35 planned cloud regions for Microsoft Azure, Google Cloud, and Amazon Web Services in the works. This expansion should help the company sustain its outstanding run in 2025. That's because spending on cloud infrastructure services is expected to increase at a faster pace in 2025 thanks to generative AI, according to Gartner. The research company is expecting a 25% jump in cloud infrastructure spending in 2025 to $212 billion, up from this year's growth of 21%. The important thing worth noting here is that Oracle is growing at a faster pace than the cloud IaaS market, indicating that it is gaining share in this space. So, there is a solid chance that Oracle's remaining performance obligations and cloud infrastructure revenue will continue to improve at a remarkable pace in the new year. And it could continue gaining ground in this market, which could help the company deliver faster growth. Analysts are expecting Oracle's earnings in fiscal 2025 to increase 13% to $6.28 per share, followed by an identical increase in fiscal 2026 to $7.12 per share. However, it won't be surprising to see Oracle clocking stronger growth thanks to its rapidly increasing RPO. This could help accelerate its revenue growth, as well as the expansion of its cloud regions to serve the improving demand for AI-focused cloud infrastructure. Moreover, Oracle seems built for healthy growth in the long run since the cloud IaaS market is forecast to generate $580 billion in revenue in 2030, according to Goldman Sachs. That would be more than double the revenue the market is expected to generate next year. So, savvy investors would do well to capitalize on Oracle's post-earnings pullback as it will now be available at a relatively cheaper valuation. The stock is trading at 30 times forward earnings as of this writing, a discount to the tech-heavy Nasdaq-100 index's earnings multiple of almost 34. The drop in Oracle's stock price following its latest results means that investors will be able to buy it at a more attractive valuation. Investors should consider grabbing this opportunity because of the bright prospects of the cloud infrastructure market for 2025 and the long run.