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Oracle's Stock Surge Driven by Cloud Infrastructure Demand and AI Partnerships
Oracle saw a remarkable nearly 9% rise in its shares on Wednesday, driven by heightened investor enthusiasm over growing demand for the company's cost-effective cloud infrastructure services, particularly from artificial intelligence (AI) applications. Maintaining this stock surge would result in an addition of more than $28 billion to Oracle's market valuation, which stood at $340 billion as of Tuesday's market close.
Throughout this year, Oracle's shares have climbed by 18%. The company's strategic focus on expanding its cloud infrastructure business aims to fuel growth by offering cloud computing and storage services to enterprises, placing it in direct competition with industry giants such as Alphabet's Google, Microsoft, and Amazon.com. Oracle positions its cloud infrastructure as a more affordable alternative to its competitors, attracting venture capital-backed generative AI startups, including Elon Musk's xAI.
In a significant move, Oracle announced a collaboration with OpenAI, the creator of ChatGPT, and Google Cloud to extend its cloud infrastructure to a broader customer base. Evercore analyst Kirk Materne acknowledged this partnership, noting it boosts Oracle's standing as a leading AI platform and expands its database distribution through the new relationship with Google.
OpenAI Collaboration Enhances Oracle's AI Credibility
The partnership allows OpenAI to employ Microsoft's Azure platform on Oracle's infrastructure for specific use-cases, while also training its new language learning models on a supercomputer co-developed with Microsoft. This strategic alignment underscores Oracle's robust position in the AI and cloud infrastructure sectors.
Despite Oracle's promising ventures, the company faces pricing pressure from less-expensive alternatives. Oracle's stock trades at 19.59 times its forward earnings estimates, a figure notably lower than Amazon.com's 36.35, Microsoft's 32.60, and Alphabet's 21.85.
Legacy Software Business Faces Challenges
Oracle's fourth-quarter results missed market expectations, highlighting the ongoing challenges within its traditional database and enterprise resource planning (ERP) software segments. The company faces stiff competition from more affordable options in these areas. Morningstar analyst Julie Sharma pointed out the significant churn from Oracle's software to competing database and ERP solutions amid extensive digital transformation efforts.
