UBS analysts are focused on the potential for Oracle Corporation (NYSE:ORCL) to fall short of its 30% Cloud growth target for fiscal 2023, when the company reports its fourth quarter 2023 results on Monday, June 12, but think there could be a compelling AI story to be told about Oracle Cloud Infrastructure’s (OCI) graphics processing unit (GPU) capacity.
They bumped up their 12-month target price on Oracle stock to $110 from $90, but maintained a ‘Neutral’ rating in a report previewing the software company's 4Q results.
“We expect Oracle to again highlight its relationship with Nvidia and the large Nvidia GPU clusters available on OCI,” the analysts said, believing the AI story might impact the stock as much as the numbers.
They wrote that a software company told them that they’re using OCI for AI workloads in large part because of OCI’s GPU availability, which might end up “trumping mixed 4Q/May fundamentals”.
Shares of Oracle rose 5% to $114.98 in early Monday trading ahead of its financial results after the close today.
Last quarter, Oracle stated “a lot of new AI companies are coming to Oracle because we're the only ones that can run their workloads– and we are cheaper.”
Heading into the company’s 4Q results, analysts at UBS said the earnings per share (EPS) multiple offers strong valuation support in light of Oracle’s 5% to 10% revenue growth profile and Cloud segment growth, but note its free cash flow multiple “looks rich”.
“Bottom line, we remain neutral on Oracle shares, encouraged by the top-line turnaround, by OCI progress and by the stronger-than-expected durability of the core database business, but offset by the capex intensity, margin compression and softness from the SaaS (software as a service) segment last quarter and our checks,” they added.
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