In the most recent quarter, Oracle’s cloud revenue exceeded revenue from licensing operations and support services, signaling a significant shift in the company’s revenue sources. Despite only holding a 2% share of the cloud services market, Oracle is strategically positioning itself to compete against industry giants like Amazon and Microsoft by leveraging its entry timing and unique AI cloud solutions.
The growth aspirations of Oracle’s cloud computing align with the booming AI market, which is expected to grow rapidly in the coming years. With the AI cloud market valued at $45 billion in 2022 and estimated to grow at a compound annual rate of 39.6% between 2023 and 2030, Oracle’s focus on Gen2 AI cloud platform has already shown promising results with a 53% revenue increase in the third quarter.
As AI becomes increasingly integral to businesses of all sizes, enterprise customers are seeking customized AI cloud solutions that cater to their specific needs. Oracle’s ability to offer flexible and innovative cloud configurations, including hybrid cloud setups, has distinguished it in the market.
Moreover, Oracle’s strategic partnerships with Microsoft and NVIDIA further enhance the company’s AI cloud offerings. Through collaborations, Oracle can provide customers with access to its database programs and generative AI solutions running on powerful NVIDIA graphics processors at competitive speeds and costs.
The company’s growth strategy is evident in its increasing remaining performance obligations, with $34 billion expected to be booked as revenue within the next 12 months. Oracle’s shift from legacy database systems to AI cloud services is reflected in its recent milestone of cloud revenue surpassing revenue from licensing operations and support services.
While Oracle maintains a high debt-to-equity ratio, its strong cash flow from operations ensures it can cover debt service needs. Investors are encouraged to consider Oracle as a long-term holding, given its significant AI growth potential that is not fully reflected in the current stock price.
John Mackey, former CEO of Whole Foods Market, sits on The Motley Fool’s board of directors, but has no position in Oracle. The Motley Fool recommends Amazon, Microsoft, NVIDIA, and Oracle, indicating confidence in Oracle’s strategic positioning in the AI cloud market.
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https://www.fool.com/investing/2024/05/23/oracle-making-ai-cloud-strides/
