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Oracle's bullish AI-driven growth outlook makes Wall Street very happy

Stuart Lauchlan Profile picture for user slauchlan June 12, 2024
Summary:
Oracle's partnering with Google Cloud to increase its capacity to meet customer demand in a multi-cloud world.

Safra Catz
Safra Catz

Recent weeks have seen various vendors, not least Salesforce and Workday, take a pummelling from Wall Street on the back of conservative fiscal outlooks. No such issue for Oracle this week as the firm pitched double-digit growth expectations on the back of AI-powered cloud sales.

As the company released its Q4 earnings, CEO Safra Catz declared:

Throughout fiscal year 2025, I expect continued strong cloud demand to push Oracle sales and RPO (Remaining Performance Obligations) even higher and result in double-digit revenue growth this fiscal year. I also expect that each successive quarter should grow faster than the previous quarter as OCI (Oracle Cloud Infrastucture) capacity increases to meet demand. We believe our momentum, our current momentum will continue as our pipeline is growing even faster than bookings and our win rates are going higher as well.

She added:

Beyond this fiscal year, I remain firmly committed to our fiscal year 2026 financial goals for revenue, operating margins and EPS growth. However, given our strong bookings results, I believe some of these goals might prove to be too conservative given our momentum.

Tipping point? 

Catz argued that Q4 saw “the full emergence of our high growth cloud businesses”, dubbing this a tipping point:

In Q4, Oracle signed the largest sales contract in our history, led by huge demand for training large language models, as well as record levels of sales for OCI, Autonomous, Fusion, and NetSuite…we are trading one-time non-recurring license revenue in return for much bigger strategic customer commitments for multi-year cloud revenue, from which we expect to further accelerate our revenue growth rates.

The Q4 and full year results were as follows: 

Q4

  • Total revenue up three percent year-on-year to $14.3 billion.

  • Cloud services and license support revenues up nine percent to $10.2 billion.

  • Cloud license and on-premise license revenues down 15 percent to $1.8 billion.

  • Net income was $3.1 billion.

Full year

  • Total revenue up six percent to $53 billion.

  • Cloud services and license support revenues up 12 percent to $39.4 billion.

  • Cloud license and on-premise license revenues down 12 percent to $5.1 billion.

  • Net income was $10.5 billion.

Partnering

Oracle also announced a partnership with Microsoft and OpenAI to extend Azure Al to OCI to provide additional capacity for OpenAl.  Catz said:

OpenAI selected Oracle to run deep learning and AI workloads on Oracle Cloud infrastructure. Like many others, OpenAI chose OCI because it is the world's fastest and most cost effective AI infrastructure.

Oracle also unveiled a multi-cloud partnership with Google along the lines of the existing alliance with Microsoft and Azure. Catz expanded:

OCI and Google Cloud Network Interconnect is available immediately in 10 regions, and we will be live with Oracle Database@Google Cloud in September, where customers can get direct access to Oracle Database Services running on OCI, deployed in Google Cloud data centers.

Such deals will help to meet customer demand, she added, noting “continued supply constraints” around OCI:

We are working as quickly as we can to get cloud capacity built out, given the enormity of our backlog and pipeline. At this moment, we have 76 customer-facing cloud regions live, with 47 public cloud regions around the world and another 19 being built. We have 11 database at Azure sites live and more locations with Microsoft coming online soon. We will have 12 Oracle database at Google Cloud sites live this year. We also have 13 dedicated regions live and 15 more planned. We have several national security regions and EU sovereign regions live with increasing demand for more of each.

As capacity increases, larger workloads will be deployed by customers, Catz said:

It's all about capacity. As we bring the capacity online, wherever it's going online around the world, is when those workloads are coming over. A lot of the engineering work is done in advance so that those customers know how they can operate. They bring smaller workloads, but the bigger workloads, they are just waiting for us to go online and make it available to them. It is really that level. We are scheduling them on our availability. Our pipeline to take more deals is all about us just getting the capacity up and live and moving forward.

CTO Larry Ellison pointed to AI demand as a major driver of growth:

In AI alone, we signed contracts with 30 different customers for $12.5 billion in new AI business…Who are the companies choosing to use Oracle Cloud Services and Oracle data centers? Well, here are a few names: NVIDIA, Microsoft, Google, X AI, Open AI, Cohere, dozens more. In other words, the world's largest cloud companies and the world's most successful and accomplished AI companies choose to use Oracle cloud services and data centers. 

He also referenced the need to support multi-cloud realities:

We believe in giving customers choice. And customers want choice. Customers are using multiple clouds, not only infrastructure cloud, but they might have SalesForce applications or Workday applications, or they use multiple clouds in their business right now. So it's very important, we think, that all the clouds become interconnected. So we're thrilled to have the connection with Microsoft and be building OCI data centers right inside of Azure. The computers are next to each other to minimize network costs and network latency, which is all good things. We're doing the same thing with Google.

And in a moment of rapprochement given previous antipathy towards the firm, Ellison added:

We would love to do the same thing with AWS.

My take

Oracle and AWS. An intriguing - and sensible - move. Let's see. Only Nixon could go to China etc etc. 

Technically Oracle’s numbers missed Wall Street consensus expectations, but that absolutely didn’t matter in this case as the stock soared on the back of Catz’s confident projections.

Onwards!

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