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Oracle has a 'we told you so' moment with strong Q4 numbers and a generative AI cloud service on the way

Stuart Lauchlan Profile picture for user slauchlan June 13, 2023
Summary:
Oracle's Q4 and full year numbers send the share price soaring.

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Oracle stock soared to a new high yesterday as the firm turned in strong Q4 numbers and announced a generative AI tie-up with Cohere.

The company turned in Q4 revenue of $13.84 billion, up 17% year-on-year, with net income of $3.32 billion. Fourth quarter cloud services and license support revenue was up 23% to $9.37 billion; revenue from cloud infrastructure was up 76% to $1.4 billion; revenue from cloud licenses and on-premises declined 15% to $2.15 billion.

With full year revenue coming in at $49.954 billion with net income of $8.503 billion, CEO Safra Catz had a well-deserved ‘we told you so’ moment on the post-results analyst call:

Three years ago, I shared with you that our own business transformation had reached a crossover point as our fast growing businesses had eclipsed the size of our declining businesses. And as a result, this would inevitably drive revenue growth acceleration going forward.

Now, I don't blame you for not believing me at the time. Fiscal year 2020 growth was zero. Well, as you can see, this has played out with organic revenue growth accelerating significantly. And that's despite the closure of our nearly half a billion dollar Russia business. Since fiscal year 2020, our strategic back office SaaS business has more than doubled in size. And consumption of our Gen 2 cloud infrastructure service is now seven times larger.

And the journey goes on, she added:

We're far from done. In fact, I just told my team, I think we're at about the middle of the beginning. Looking ahead, I see even more growth opportunities that should help power future growth acceleration in the future.

AI generation

One of those growth opps is inevitably the AI space. While rival Salesforce spelt out its strategy at a dedicated AI day in New York, Oracle slipped out its own news, announcing a partnership with, and Series C round investment in, generative AI firm Cohere. (Salesforce and NVIDIA are also investors.) The deal will see Oracle tap into Cohere’s Large Language Models (LLMs).

Catz was quick to emphasize that Oracle’s AI credentials pre-date the current hype cycle:

Our exploding AI demand leaves us significant upside. Our momentum has been driven by two fundamental differences from our competition. One, highly differentiated technology. And two, a much better customer experience.

Firstly, our cloud applications are very popular with a growing base of customers in part because we are the most modern, comprehensive, and innovative set of apps across back office, CX, and industry applications. We implemented AI machine learning capabilities years before anyone was talking about it. And it helps our customers run their businesses every day. 

CTO Larry Ellison drilled down further on the generative AI strategy:

The extreme high performance and related cost savings of running generative AI workloads in our Gen2 Cloud has made Oracle the number one choice among cutting-edge AI development companies, including Mosaic ML, Adept AI, Fouhear [Ph], Modal Labs, Character, HyperReal, SliceX, Vector Space Bio, Falconry, Respeacher, Altair, InfoWorld, 12 Labs, Layton Space, plus many, many others. In the aggregate, our generative AI cloud customers have recently signed contracts to purchase more than $2 billion of capacity in Oracle's Gen2 Cloud.

As for the Cohere tie-up, he said:

In partnership with Cohere, Oracle is launching a generative AI cloud service for enterprise customers. This new service protects the privacy of our enterprise customers' training data, enabling those customers to safely use their own private data to train their own private specialized Large Language Models.

Cohere is also using the Oracle Gen2 Cloud for training its own LLMs, he went on:

Cohere is a great company. But a lot of their expense is running AI training in the cloud. And when it's that much of your expense, if we're a lot faster, they do a lot of due diligence about the technology.

There’s also an overlap with Oracle’s stated focus on transforming the healthcare market. Ellison explained:

Oracle's application development teams were early adopters of this new AI cloud service. We used our own private data to improve and extend the training of existing Cohere Large Language Models. This supplementary training resulted in two new specialized Large Language Models, one for medical professionals and one for first responders.

Specialized Large Language Models will be instrumental in helping highly trained professionals use their precious time more efficiently…In healthcare alone, specialized Large Language Models will speed the discovery of new life-saving drugs, improve the quality of patient care, and increase access to health care by lowering costs. A technology revolution is dawning.

My take

Just an excellent set of numbers overall. The generative AI announcement was a bonus and provides Oracle with a potential enterprise challenger option to Microsoft and OpenAI.

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