ORCL Stock Forecast & Analysis

Written by Sean GraytokUpdated: 8th May 2022
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This ORCL stock forecast will evaluate the company’s investment potential, analyze its economic moat, and discuss some of its risks. 

ORCL Stock Forecast: Background 

Oracle is a computer technology company that sells software and cloud services.

It was founded in 1977 by Larry Ellison, the outspoken businessman, and investor who is one of the wealthiest people in the world.

Following Microsoft’s lead, Oracle has gone all-in on the cloud in an effort to return to prominence.

ORCL Stock Forecast: Investment Potential

#1. The Empire Strikes Back Opportunity

Oracle was big tech before Big Tech — the software giant dominated all-things computing for decades. But it was slow to adopt new technologies and lost significant market share to the FAAMG companies.

However, some investors are excited about the valuation gap between the disruptors and disrupted, believing the opportunity exists in the names that are reinventing themselves with the technology that almost destroyed them.

Carl Kawaja, legendary portfolio manager at Capital Group, calls these “Empire Strikes Back” companies.

On a recent episode of Patrick O’Shaughnessy’sInvest Like the Best podcast, Kawaja points to companies with the potential to ‘strike back,’ including Disney (DIS), General Motors (GM), and Target (TGT).

We believe that Oracle should be added to his list.

Oracle has reinvented itself for the cloud computing era and once again competes with the companies that knocked it off the top: Amazon’s (AMZN) AWS, Microsoft’s (MSFT) Azure, and Google’s (GOOG) Cloud Platform.

It’s a wide gap, but Oracle is the best’ legacy tech arbitrage’ in the public cloud market.

#2. A Small Percent of a Large (and Growing) Number is Still Large

According to Synergy Research Group, Oracle controls just 2% of the cloud market — here’s how the rankings shakeup:

  • Amazon Web Services: 32%
  • Microsoft Azure: 20%
  • Google Cloud: 9%
  • Alibaba Cloud: 6%
  • IBM Cloud: 5%
  • Salesforce: 3%
  • Tencent Cloud: 2%
  • Oracle Cloud: 2%

Oracle is counting on three offerings to improve its positioning: cloud-only Autonomous Database (ADB) product, enterprise cloud applications, and the Oracle Cloud Infrastructure (OCI).

The ADB product uses artificial intelligence and machine learning to automate cloud management tasks traditionally done by a database administrator, such as tuning, security, backups, and updates.

Next, only a small portion of the enterprise app market has migrated to the cloud. Oracle is shifting existing customers’ operations to the cloud and expanding the margins of everyone involved.

Last, the Oracle Cloud Infrastructure. The OCI was built from scratch just six years ago and is now a viable competitor to AWS, Azure, and Google.

Oracle’s massive customer base helps get the OCI off the ground, but it’s winning business from a new class of companies, such as videoconferencing providers Zoom (ZM) and 8×8 (EGHT).

In Q1 2021, total cloud infrastructure spendwas $42 billion, up 35% year-over-year.

Oracle announced its aggressive cloud strategy around the same time as this report, so it will be interesting to see how this landscape develops.

#3. Oracle’s Valuation

Wall Street views Oracle much differently than the other names in the cloud market. At least at this moment in time.

It trades at 6x sales compared to 13x and 10x from Microsoft and Google, respectively.

If Oracle executes its cloud strategy and becomes a player in the IaaS market, Wall Street might start trading it as such.

What remains to be seen is how Wall Street measures Oracle’s success.

No one expects a 25% market share in 2025 – so what do they expect?

If total cloud spend increases to $100 million per quarter and Oracle maintains its 2% … is that good?

Or is Wall Street expecting it to pass Salesforce and IBM in market share? Time will tell.

As Eric Savitz of Barron’s writes, “If Oracle is a cloud play, it is certainly not being valued as one.”

ORCL Stock Forecast: Economic Moat

We believe that ‘legacy inertia’ separates Oracle from other software and cloud companies competing with Big Tech.

Oracle has hundreds of thousands of customers — each is an opportunity to help move them to the cloud.

For example, the two most popular databases in the world are the Oracle ADB and Oracle MySQL. Both of these funnel customers towards the OCI cash cow.

But it’s more than conversion rates — Oracle has good tech.

Oracle’s MySQL runs ’10 to 100 times faster’ than Amazon’s version of MySQL called Aurora.

Ellison claimsthat several of Amazon’s customers are moving their workloads to Oracle MySQL to upgrade their technology.

This is something to watch moving forward. You’d expect the company to benefit from high switching costs from Oracle apps and databases and into the AWS or Azure ecosystem.

It’s another story if consumers are switching into the Oracle ecosystem.

Oracle Stock Analysis

Oracle announced Q3 2022 earnings in March — here are the results:

  • Earnings: $1.13 per share vs $1.18 per share expected
  • Revenue: $10.51 billion vs $10.51 expected

Revenue increased 4% from the same time period a year ago. However, net income declined 54% to $2.32 billion. 

Net income dragged due to the falling share price of a gene-sequencing company that Oracle recently purchased. 

ORCL stock fell 6% after the call, then rebounded shortly after. 

ORCL Stock Forecast: The Competition

Everyone who is anyone wants a piece of the public cloud. Let’s see Oracle’s top competitors:

  • Amazon (AMZN)
  • Microsoft (MSFT)
  • Google (GOOG)
  • Salesforce (CRM)
  • IBM (IBM)
  • Alibaba (BABA)
  • Tencent (TCHEY)

Cloud infrastructure is a winner-take-most market, but at least the space is expanding.

The ‘cloud opportunity’ is not a zero-sum game.

Oracle Stock’s Bear Case

#1. Big Tech

There’s a world where Amazon, Microsoft, and Google make up the entire public cloud market.

That would not bode well for Oracle shareholders.

Not all ‘Empire Strike Back’ companies are going to make it.

Reinventing a decade’s worth of technology is hard — that’s the risk you’re assuming with ORCL.

Oracle Stock Allocation in Your Portfolio

The following questions serve as a barometer on your ORCL confidence:

  • What must happen for Wall Street to trade Oracle at valuations on par with the other cloud providers?
  • How will Wall Street measure Oracle’s success?
  • Will Oracle ever be considered a ‘growth stock‘ again?
  • How long will Oracle be playing ‘catch up’ in cloud computing (from an investment perspective that impacts its earnings)?
  • Is the relationship of Oracle’s apps, ADB, and OCI a flywheel, or do they operate in silos?
  • Will the Empire Strike back?
  • Are cybersecurity stocks like CrowdStrike (CRWD) or OKTA (OKTA) a better investment than ORCL?
  • Can Oracle attract top talent to build out its offerings?

The company could deliver on most of these, and the stock could still trade sideways (or even down) for years.

ORCL Stock Forecast: FAQs

Is Oracle stock a buy or sell?

Oracle stock is outperforming the S&P 500 (VOO) and the Nasdaq-100 (QQQ) in the last year. Shares of Oracle have increased 18% thus far, compared to 16% from VOO and 15% from QQQ.

Is Oracle stock undervalued?

Some consider Oracle stock ‘undervalued’ because it is not traded at similar valuations to its peers. This means that Wall Street and retail investors are less confident in its growth narrative than other names in the cloud computing sector.

Does Oracle pay a dividend?

Oracle has an annual dividend yield of 1.54%, which equates to a quarterly dividend amount of $0.32 per share. 

Is Oracle stock expected to rise?

Oracle stock is expected to rise if its cloud computing push is a success. However, it is unclear how ‘success’ will be defined in the long term.

Bottom Line: Oracle Stock Forecast

You’re up 125,000% if you bought shares of Oracle in 1986. Cloud computing played no role in this, but it will be everything moving forward.

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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched ORCL stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.