Shares of software giant Oracle (NYSE: ORCL) have been on fire, up 48% so far in 2023 and building its trailing-three-year run to now over 130%. And the company has made its co-founder, executive chairman, and chief technology officer (CTO) Larry Ellison a great deal of money.
After another knockout quarter and jump in stock price, Bloomberg reported that Ellison became the world's fourth-richest person, with a net worth of nearly $130 billion, passing Bill Gates for the slot. Ellison trails behind Amazon founder Jeff Bezos, LVMH Moët Hennessy Louis Vuitton founder and chairman Bernard Arnault, and Tesla's Elon Musk.
Besides owning over 42% of Oracle, Ellison was also on Tesla's board of directors up until summer 2022.
But back to Oracle specifically and its resurgence: The "old" software company's heyday was back in the 1990s, but it's returned with a vengeance in the post-pandemic world. Oracle shareholders can thank CTO Ellison's moves into healthcare and an AI partnership with Nvidia (NASDAQ: NVDA) for that.
Oracle's cloud market share gains
Oracle just put the final wrap on its fiscal 2023 (the 12 months ended in May 2023). Total revenue for the year was $50 billion, an 18% increase over 2022 (or a 22% increase when excluding negative currency exchange rates). In the fourth quarter alone, revenue was up 17% from a year ago to $13.8 billion.
The strong growth is attributable to Oracle Cloud revenue of $4.4 billion, a huge 54% year-over-year increase. Cloud sales comprised $1.4 billion from Infrastructure as a Service (IaaS, up 76% year over year) and $3 billion from Software as a Service (SaaS, up 45%).
However, Oracle Cloud did get a big boost from the acquisition of healthcare software giant Cerner last summer. Excluding Cerner revenue, total Oracle Cloud sales would have grown 33% year over year.
Let's not take too much away from Oracle, though. Even when backing out the bump in growth from Cerner, Oracle Cloud has been on fire and has begun gaining market share from its public cloud peers Amazon's AWS, Microsoft's Azure, Alphabet's Google Cloud, and even tiny small business cloud provider DigitalOcean.
Fiscal Period* | Oracle Cloud Growth, Excluding Cerner and Currency Exchange Rates |
|---|---|
Q4 fiscal 2023 | 33% |
Q3 fiscal 2023 | 28% |
Q2 fiscal 2023 | 27% |
Q1 fiscal 2023 | 29% |
Data source: Oracle. *Oracle's fiscal year Q4 most closely aligns with Q1 of calendar year 2023. Chart by author.
Company and YoY Cloud Revenue Growth Rate | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 |
|---|---|---|---|---|
DigitalOcean | 29% | 37% | 36% | 30% |
Amazon AWS | 33% | 27% | 20% | 16% |
Microsoft Azure | 40% | 35% | 31% | 27% |
Google Cloud | 36% | 38% | 32% | 28% |
All quarters refer to calendar year 2022 and 2023 growth, as Microsoft's fiscal year ends in June every year. Data source: DigitalOcean, Amazon, Microsoft, and Alphabet. Chart by author.
Clearly, where other public cloud companies have started to feel the pinch from slowing economic growth this year, Oracle's momentum has only accelerated. What gives?
Oracle Cloud lands AI victories as it deploys...Nvidia chips!
As in past quarters, Ellison and Oracle CEO Safra Catz talked about Oracle Cloud's early adoption of AI and machine learning years ago, before the current AI hype cycle. In fact, last autumn, Oracle struck a key partnership with Nvidia to plug tens of thousands of the cutting-edge chip designer's AI systems into its cloud offering. And in March, Nvidia selected Oracle Cloud as the first public cloud service to offer Nvidia's DGX Cloud AI subscription service.
Additionally, Ellison said Nvidia is using Oracle Cloud itself in developing more AI technology.
As I've posited before, Nvidia chips have leveled the playing field in the cloud industry -- which has pried the door wide open for upstart Oracle Cloud as it plays catch-up to its younger-but-larger cloud software and infrastructure peers. Ellison and Catz believe Oracle's resurgence as a top technologist has only just begun.
Oracle stock fetches a very high premium these days, and the stock price could come under pressure as growth rates moderate. There will be no more growth bump from the Cerner acquisition in the year ahead (fiscal 2024), so year-over-year revenue growth will likely settle back into a high-single-digit percentage and earnings per share growth at a low-teens percentage. At 39 times trailing-12-month earnings, or over 20 times one-year forward expected earnings, I'm remaining on the sidelines for now.
Nevertheless, Oracle's stellar performance has catapulted Ellison into the top five richest people list and helped his software company recapture the spotlight. Keep this stock on your radar.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients have positions in Alphabet, Amazon.com, DigitalOcean, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon.com, DigitalOcean, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
