Oracle on pace for best year since 1999. How to play the meteoric rise

Bets on artificial intelligence and the buildout of large language models have hoisted shares of a once ubiquitous megacap technology stock to its best year in a quarter century. Oracle has soared 75% this year, headed for its second-best year on record and best since 1999, when shares roughly quadrupled in price. ORCL YTD mountain Shares this year The rally in Oracle comes as investors ramp up bets on AI spending stretching out farther into the future, two years after ChatGPT ‘s groundbreaking debut. Semiconductor maker Nvidia has been the focus of the AI-infused rally for the past two years, driving Jensen Huang’s company to become the most richly valued in the U.S. Advanced Micro Devices , Alphabet and Microsoft have also helped power the market to new highs. That’s changed in 2024 as investors expanded their scope beyond the early winners and searched for secondary infrastructure beneficiaries — allowing companies such as Oracle to regain the spotlight for the first time since Bill Clinton occupied the White House. “The company is delivering a lot of value to its customers,” said Dan Flax, senior research analyst at Neuberger Berman. “Their pivot to the cloud is helping set them up for continued strong performance. The key is really demonstrating durable growth and Oracle is doing just that.” How it got here Since its founding in 1977, Oracle has ballooned into one of the world’s largest software companies and helped shape the enterprise computing industry . That success has made 80-year-old founder Larry Ellison the world’s second-richest person after Elon Musk, worth some $227 billion, according to the Forbes Real-Time Billionaires list . After taking a backseat for the past decade to tech rivals and losing market share to Salesforce and hyperscalers dominating the infrastructure as a service industry, Oracle has recently seen a resurgence, boosted by technology tailwinds. CFRA Research analyst Angelo Zino notes that Oracle has struggled as it ramped up spending on acquisitions, and initially dismissed the rise of cloud computing, which benefited companies such as Microsoft. ORCL ALL mountain Oracle, long term Now, refocusing on its cloud infrastructure business has helped Oracle master the AI ecosystem, fueling interest from investors. “We’re moving to this world where, every enterprise company is essentially looking for cloud space out there, for greater AI workloads,” Zino said. “It’s a business that has the potential to really grow significantly here over the next couple of years.” Dakota Wealth Management’s Robert Pavlik also credits Oracle’s background in data management as a tool that helped it pivot into the world of AI. But the company has another secret weapon under its belt that’s benefited its renewed rise: Ellison. “Larry has this uncanny ability to — whatever’s hot at the moment — focus a spotlight on it and say, ‘That’s what we’re going to do,'” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “He’s [an] excellent marketer. He’s not as good as Steve Jobs – but he’s pretty good.” What’s next for the stock Despite Oracle’s meteoric rise, some on Wall Street – including Forrest – have raised concerns over the sustainability of the recent rally – or urged investors to opt for opportunities elsewhere. Even with its attractive growth trajectory, CFRA’s Zino notes that the stock now trades at almost 30 times earnings, above their historical average. That also means Oracle is selling at a premium to Alphabet, albeit behind Amazon and Microsoft. “After the recent expansion that you’ve seen here, I’d rather be telling investors out there to play more of the Microsofts of the world than I would the Oracles of the world,” Zino said. Further gains for Oracle, however, could be limited after this year’s colossal run. Analysts’ average price target implies shares may stay rangebound over the next 12 months, according to FactSet data. Still, investors such as Laffer Tengler Investments CEO Nancy Tengler view Oracle as operating in a sweet spot in the worlds of cloud computing and AI inference. “It’s the largest holding in our actively managed ETF, because we think that the growth is going to continue to be super strong going forward,” said Tengler, who began acquiring a position in Oracle in May 2022. She views Oracle’s partnership with hyperscalers and cloud providers as benefiting the stock. Despite an elevated P/E multiple, shares appear cheaper than Microsoft and Amazon. Plus, Oracle looks poised to steadily boost revenue over the next few years. “They are accelerating, while on premise software companies are decelerating,” Tengler said. “There’s not a lot of companies that are growing” at the rate of Oracle.