By Dan Gallagher
Oracle might be the most unlikely AI success story yet. It's certainly no longer a secret one.
The database software giant founded 48 years ago has found new life in the artificial-intelligence craze. Oracle had already built up a cloud business to compete with those offered by industry titans like Amazon, Microsoft and Google. Now, demand for AI computing is driving even more business Oracle's way.
The company closed its latest fiscal year in May with remaining performance obligations -- contracted revenue not yet recognized -- of $138 billion, up $40 billion from the same point the prior year and more than double the same point two years ago.
Another thing that has doubled over the past two years is Oracle's stock price. That has propelled the company's market capitalization to around $650 billion and made Oracle the biggest tech company not yet part of the Trillion Dollar Club. And earlier this month, Oracle's price to forward earnings ratio passed that of Microsoft for the first time in 12 years, according to data from FactSet.
That sets a high bar for Oracle going forward. Especially since much of the gains have been driven by rather huge developments that aren't easy to repeat frequently. The stock has jumped more than 40% in the last two months, a period that included the company's latest earnings report and the subsequent disclosure of a new cloud service agreement expected to contribute more than $30 billion in annual revenue starting in Oracle's 2028 fiscal year.
That alone has the potential to remake the company; $30 billion from a single customer is more than half the total annual revenue Oracle currently generates. And it might only be the beginning, as the deal appears to be the first of the massive Stargate project with OpenAI and SoftBank that was announced early this year in a high-profile White House event featuring President Trump and Oracle co-founder Larry Ellison.
AI has already given Oracle a major face-lift on Wall Street. Two-thirds of analysts currently rate the stock as a buy compared with less than a third three years ago, when Oracle looked like a cloud latecomer that was distantly trailing its big three rivals.
Oracle's biggest challenge at this point will be managing what is still a volatile business against significantly raised expectations. Much also depends on the company's ability to secure the necessary AI chips from Nvidia that are in hot demand elsewhere. That is proving expensive; Oracle dropped a record $21.2 billion in capital expenditures in its latest fiscal year, which tipped the company into negative annual free cash flow for the first time since 1990, according to data from S&P Global Market Intelligence. And Oracle is also bidding against even deeper pockets. Microsoft now spends nearly four times as much on annual capex, but also generates more than four times Oracle's annual revenue.
It helps, though, that Oracle isn't completely dependent on AI contracts to fuel its accelerating growth.
The company's OCI public cloud business has been benefiting from growing corporate demand for cloud services. It has also been able to strike partnerships with its three larger cloud rivals, helped in part by a legacy database platform that most large corporations still use, even if they are also using other cloud services. Brent Bracelin of Piper Sandler upgraded Oracle to a buy rating last week, noting that a recent survey found that 27% of chief information officers intend to boost their net spending on OCI, compared with 18% six months ago.
That is an especially good sign for Oracle given indications of weakening spending in other segments of enterprise software. While its high valuation poses risks, Oracle has lately done a good job silencing the skeptics.
Write to Dan Gallagher at dan.gallagher@wsj.com
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July 16, 2025 05:30 ET (09:30 GMT)
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