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  • Writer's pictureAbacus Research

ORCL: GARP with AI + customer migration tailwind

'The Story'

There is a new energy at ORCL. Employees and management think they can win again. It has been a long time since this was true.

Every customer who could leave Oracle - left. Oracle's ability to win new customers went to zero, they did not have a competitive product, the new breed such as AWS killed them. Those customers who remain with Oracle, cannot leave, it is just too risky and painful for those systems. E.g. banks, telco, healthcare systems that are mission critical. An airlines booking system, or an ATM cannot start afresh. All those customers want to move to the cloud, it is cheaper and more agile. Until now they couldn't.

The latest iteration of OCI (Oracle's AWS equivalent) seems to give them this possibility and enable these customers to move to a hybrid cloud environment.

  • I.e. Move workloads from a corporate data center to Oracle's data center without any reengineering. (Without any reengineering is key)

The bullish pitch is that for these customers 15 years late (AWS launched in 2006) is not too late at all. Customers are now moving as OCI 2.0 has finally given them a migration path.

Plus given the AI world that is probably coming, ORCL OCI 2.0 might have an advantage that may make OCI a destination for enterprise AI workloads.

The story is therefore that ORCL is on the cusp of becoming the 3rd/4th Hyperscaler / cloud, ORCL's future growth will become more obvious and it is trading at a discount to where it could trade on PE.

Summary and Conclusion

OCI 2.0 + LLMs = ORCL is relevant again. At least that is the question we are trying to answer.

  • What is the magnitude of Oracle’s revenue and earnings growth re-acceleration over the next several years? (if any)

    • Under a success scenario we see 10% top line growth, 12% operating profit growth.


  • There is reasonable probability of upside to consensus on ORCL eps growth over the next few years if OCI 2.0 delivers on the migration of traditional customers from on-prem to the cloud.

    • If OCI 2.0 can be successful in winning AI workloads it would make the growth angle more compelling.

  • Clearly early days and not possible to have high conviction, but given the lowish rating of ~19x 2024 P/E, excess return via both earnings expansion as well as a small re-rating are possible, the risk reward looks attractive. Certainly the downside (Estimate $105) seems constrained unless ORCL mis-executes in a big way or OCI strategy is an abject failure.

    • Upside to ~$152 ($7.50 EPS x 22 PE, discounted back 1 yr) over the next 18 months.

    • FY 2026 EPS of $7.50 based on $65bn in revenues. Street at $64bn.

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