We recently published a list of Analysts are Recommending These 10 AI Stocks. Since Oracle Corporation (NYSE:ORCL) ranks 9th on the list, it deserves a deeper look.
The past several months of market activity and tech innovation has proved that the AI trends that started with the launch of ChatGPT are here to stay and all of this was not something that’d fizzle out after making headlines for some time. Companies are investing billions in AI and they expect to see the results of their investments in the coming months and years. Analysts at UBS said in a report earlier this year that if the launch of ChatGPT was the “iPhone moment” for the AI industry, apps like Copilot signify the “App Store moment.”
UBS also increased its revenue estimates for the AI industry in the report by 40%. The firm said at the time that it now expects revenue in the AI industry to increase from $28 billion in 2022 to $420 billion in 2027. This would represent a CAGR of over 70%.
UBS justified its growth projections by drawing an analogy from the past growth cycles of mainframes, smartphones and PCs.
“Annual shipments for mainframes were only about 1mn units until the 1980s, when they ballooned to around 10mn as microcomputers became mainstream computing devices. This was followed by a sharp increase during the PC era, when annual PC shipments shot up to more than 100mn units, with PC shipments eventually reaching an annual run-rate of nearly 300mn. Smart devices, which include smartphones and tablet PCs, crossed 1bn shipments during the mid2010s. Currently, annual shipments are close to 1.5bn units. With AI, we expect this 10x growth trend to continue, with annual AI chatbots and applications potentially crossing 10bn units.”
For this article we took a look at the latest analyst rating actions around AI stocks and picked the 10 most important AI companies that recently received positive comments or ratings from notable Wall Street analysts. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Oracle Corp (NYSE:ORCL)
Number of Hedge Fund Investors: 93
According to CNBC, an analyst at Bernstein recently gave bullish commentary about Oracle Corp (NYSE:ORCL).
“The best mix of downside protection and upside opportunity driven by idiosyncratic growth acceleration at a reasonable valuation,” the analyst reportedly said of Oracle.
Dan Ives of Wedbush is also bullish on the stock following the AI revolution and its trickle-down effects. Ives named Oracle Corp (NYSE:ORCL) among the stocks he thinks could benefit from the AI wave.
Oracle Corporation (NYSE:ORCL) earlier this month posted weak fiscal Q4 results, but the stock remained steady after the company said it signed multiple AI deals with leading horses in the industry. Oracle Corporation (NYSE:ORCL) said it reached a deal with OpenAI and Microsoft to extend Azure Al platform to Oracle Cloud Infrastructure (OCI) to provide additional capacity for OpenAl. Oracle also revealed a partnership with Google after which Google Cloud will offer Oracle Cloud Infrastructure database services and high-speed network interconnect.
Despite the weak fiscal Q4 results, Oracle’s Cloud business was strong. Cloud infrastructure (IaaS) revenue jumped 42% year over year. For fiscal first quarter, Oracle Corporation (NYSE:ORCL) expects its revenue to rise by 6% to 8% in constant currency, while adjusted EPS growth is expected in the range of 11% and 15%. One of the metrics in Oracle’s Q4 report that impressed the Street was Remaining Performance Obligations (RPOs), which surged 44% YoY in the period. Management expects 39% of this amount to come in the next twelve months. Oracle’s Cloud is exposed to the IaaS market, which is projected to grow to $738.11 billion by 2032, according to some estimates. Oracle Corporation (NYSE:ORCL) management said the company is building data centers and analysts believe the company’s automated OCI services will grow amid rising demand. Given Oracle’s partnerships with major AI players and its dominance in the niche OCI market, it’s forward P/E ratio of 22.03 looks attractive when compared to peers.
Mar Vista Global Strategy stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) is seeing revenue acceleration as it benefits from several years of investing in cloud-based solutions that are now driving demand. Oracle’s OCI offering is recognized as a viable hyper scaler offering and is winning mindshare from leading cloud customers including Open AI. This is driving accelerating demand as it offers a strong value proposition to customers due to its favorable performance and cost metrics. This coupled with Oracle’s recently announced partnerships with Microsoft Azure and Google Compute Platform, which could help facilitate the migration of the Oracle Database to the cloud. We believe this should support a third leg of growth for Oracle as its large installed base of database customers shift from on-premise to cloud deployments. As database customers migrate to the cloud, Oracle could increase database software support revenues by two-to-three times. We continue to believe Oracle is well positioned to grow intrinsic value low-double-digits over our investment horizon.”
Overall, Oracle Corporation (NYSE:ORCL) ranks 9th on Insider Monkey’s list titled Analysts are Recommending These 10 AI Stocks. While we acknowledge the potential of Oracle Corporation (NYSE:ORCL), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
