76report

June 15, 2025

Oracle (ORCL) Still Attractive after Blowout Earnings

Subscribers to the American Resilience Model Portfolio received an early Father’s Day gift last week (even the ones who are not fathers). Shares of portfolio holding Oracle (ORCL) surged after the company delivered a highly encouraging earnings report.

ORCL is up 22% since fiscal fourth quarter earnings were released after the close of trading on Wednesday, June 11, 2025. ORCL closed on Friday at an all-time high of $215.

We continue to view ORCL as an attractive long-term investment and have not modified its weighting as a top position within the American Resilience portfolio.

We introduced ORCL to the American Resilience portfolio on July 12, 2024 and informed 76report subscribers at that time (The Comeback Kid — An AI Play with a Sensible Valuation).

Since ORCL was added to the portfolio last July, the total return has been 50%. This compares very favorably to the S&P 500 total return of 8% and the NASDAQ Composite total return of 6% in the same time frame.

ORCL vs. S&P 500, NASDAQ

(Total Return - 7/12/2024 through 6/13/2025)

Shares of ORCL since 7/12/2024 have also outperformed all seven of the Magnificent Seven tech platform stocks. Like ORCL, these stocks represent large-cap plays on the AI theme.

ORCL outperformed Tesla (TSLA), the top performing name within the Mag 7, by 19%, and Apple (AAPL), the worst performing name, by 65%.

On a year to date basis, ORCL has returned 30%, versus 2% for the S&P 500 and 1% for the NASDAQ.

Is ORCL still worth owning?

When a stock substantially outperforms, it may be cause for celebration but also requires investors to reevaluate the investment. Perhaps it has become too expensive.

It is one thing for a company to be great. But if the valuation overstates just how great it is, the investment going forward can be disappointing.

What we originally found so compelling about ORCL was its subdued valuation relative to its strong growth prospects and positioning in AI.

Our strong preference is to identify opportunities where the growth outlook is not only highly secure but the valuation does not rely on aggressive targets being achieved…. ORCL no longer trades like an ex-growth mature software company as it did five or more years ago, when management was very aggressively scooping up its own shares. But it still only trades at approximately 20x next year’s earnings. This multiple represents a significant discount to software peers and other large cap AI plays, like MSFT (35x forward) or NVDA (50x forward). - 76report (7/12/2024)

In retrospect, the market was severely underestimating ORCL’s growth profile and is only now catching up. While ORCL’s valuation has grown significantly, so has its financial performance.

Accelerating growth

Fiscal year 2025 (ending May 31) revenue grew at 9% in constant currency terms. The company expects even faster growth in 2026 as its strategic focus on transitioning customers to the cloud continues to bear fruit.

The company expects its total cloud growth rate (applications plus infrastructure) to accelerate from 24% in 2025 to more than 40% in 2026. Cloud infrastructure alone is expected to increase from 50% to more than 70%.

A key metric for ORCL is Remaining Performance Obligations (RPO). This represents the total value of contracted, non-cancellable future revenue that the company has not yet recognized.

RPO, in other words, is business that has already been locked in with customers and will flow through the financial statements in future periods.

ORCL stated that it expects its RPO to grow by more than 100% in 2026.

Importantly, management’s guidance contains minimal contribution from the Stargate initiative, which was announced by President Trump in January and features ORCL as a key contributor (Trump Announces $500 Billion AI Infrastructure Plan).

Stargate remains a source of longer term upside for the company.

ORCL Founder Larry Ellison with Trump at the White House (1/21/2025)

Unique positioning in AI

ORCL pioneered the database business and is the dominant provider of databases to large enterprises. This is turning out to be an extraordinary advantage in the age of artificial intelligence.

Relative to other types of enterprise software, databases are quite sticky.

Large corporations, institutions and governments invest a great deal in assembling, managing and protecting their data, which then becomes highly integrated within their day-to-day operations.

Databases are not an area where it makes sense to cut corners. Switching from one database provider to another can also be very disruptive and risky. Contract renewal rates tend to be extremely high.

The database is ORCL’s hook into providing customers with a broader suite of cloud and AI services.

ORCL founder Larry Ellison emphasized on the earnings call last week just how much value ORCL is now providing customers by meshing its database services with AI tools.

We have most of the world's valuable data. The vast majority of it is in an Oracle database…. This is why our database business is going to grow dramatically. Think about it, you have to put all of your data into a database, so that database must be highly secure. It must be scalable. It must be economical. It must be reliable, seven days a week, 24 hours a day…. That's how Oracle got popular in the first place. But then it has to hold the data in a way that's consumable by the AI models. In other words, the data has to be vectorized and searchable by the AI models and you use that data to train up those models on your data. Who else is doing that? Let me answer the question: nobody. - Larry Ellison (6/11/2025)

Valuation still quite reasonable

Despite the sharp jump in the share price, reflecting the improved long-term earnings outlook, ORCL shares are not expensive.

Current consensus estimates put ORCL at approximately 23 times calendar year 2027 earnings. This is a moderate premium relative to 18 times for the  S&P 500 Index, despite ORCL’s substantially higher long-term growth prospects.

We would also not be surprised to see ORCL’s long-term earnings expectations rise as analysts continue to revisit their assumptions following last week’s results.

ORCL is rapidly emerging as a leading platform for AI services with the opportunity to grow over time in many interesting directions. The company is pursuing AI growth opportunities aggressively.

Capital expenditures for fiscal year 2026 are now expected to be around $25 billion, about 30% higher than previous estimates as ORCL builds out AI data center capacity.

Investors are starting to appreciate just how well-positioned ORCL is as a key player in the AI revolution. We continue to view ORCL as a compelling long-term investment.

Oracle (ORCL): Company Snapshot

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