oracle (NYSE:ORCL) has been a solid performer on the stock market so far this year, up an impressive 80% as of this writing. But that impressive rise came after the company’s fiscal 2025 second-quarter results (three months ending Nov. 30) were released on Dec. 9, when the numbers fell short of Wall Street expectations. It stopped.
Shares of the company, whose business is significantly accelerating thanks to strong demand for cloud infrastructure to support artificial intelligence (AI) workloads, fell more than 8% in premarket trading the day after the earnings release. However, a closer look at Oracle’s last quarter performance and the healthy growth the company posted across key metrics suggests that investors may be missing the big picture.
Let’s take a closer look at Oracle’s numbers in this article to see why buying this stock now is a smart move not only for 2025 but for the long term.
Oracle’s second fiscal year revenue was $14.1 billion, an increase of 9% from the same period last year, and non-GAAP earnings were $1.47 per share, an increase of 10%. However, analysts had expected sales of $14.11 billion and earnings of $1.48 per share. It’s worth noting that Oracle’s sales hit the high end of management’s guidance range, as Oracle had expected sales to increase between 7% and 9% in the fiscal second quarter. That end line is also at the midpoint of the guidance issued in September.
But strong demand for Oracle’s cloud infrastructure, which companies rent to train and deploy AI models, is probably why Wall Street expected the company to grow a little faster. But investors should not forget that Oracle’s revenue pipeline improved again at an impressive pace last quarter.
Remaining performance obligations (RPO), the total amount of a company’s contracts that have yet to be fulfilled, increased by a staggering 50% year-over-year to $97 billion in the second quarter of the fiscal year. The healthy growth in this metric comes as demand for Oracle’s cloud infrastructure remains strong as more customers sign up to rent Oracle’s Infrastructure as a Service (IaaS) offerings to meet their AI needs. It clearly shows that it is strong.
Oracle executives said in the company’s latest earnings call that the company had seen “record” demand for AI, leading to cloud infrastructure revenue of $2.4 billion last quarter, up 52% year over year. It’s also worth noting that even though Oracle could have generated more revenue from its cloud infrastructure business, demand for this segment exceeded supply.
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After all, consumption of Oracle’s cloud infrastructure, powered by graphics processing units (GPUs) such as Nvidia, increased by a whopping 336% last quarter. Not surprisingly, Oracle is focused on expanding its cloud infrastructure, with 35 cloud regions planned for Microsoft Azure, Google Cloud, and Amazon Web Services.
This expansion should help the company maintain its outstanding performance in 2025. According to Gartner, spending on cloud infrastructure services is expected to grow at a faster pace in 2025 thanks to generative AI. The research firm expects cloud infrastructure spending to be $212 billion in 2025, an increase of 25% from this year’s 21% increase.
The important thing to note here is that Oracle is growing faster than the cloud IaaS market, indicating that Oracle is gaining share in this space. As such, there is a good chance that Oracle’s remaining performance obligations and cloud infrastructure revenues will continue to improve at an impressive pace in the new year. And it is likely to continue to establish itself in this market, which could help the company achieve faster growth.
Analysts expect Oracle’s fiscal 2025 earnings to rise 13% to $6.28 per share, and the same for 2026, at $7.12 per share. However, it’s no surprise that Oracle is experiencing stronger growth due to faster RPO growth. This could not only accelerate the company’s revenue growth, but also help it expand its cloud regions to meet the growing demand for AI-centric cloud infrastructure.
Additionally, the cloud IaaS market is expected to generate $580 billion in revenue in 2030, according to Goldman Sachs, so Oracle appears to be built for healthy growth in the long term. This is more than double the revenue the market is expected to generate next year. As such, smart investors would do well to take advantage of the post-earnings pullback as Oracle becomes available at a relatively cheap valuation.
As of this writing, the company trades at a forward P/E ratio of 30 times, discounting the tech-heavy Nasdaq 100 index’s price-to-earnings ratio of about 34 times. The drop in Oracle’s stock price following the latest results means investors can buy into the company. With a more attractive valuation. The outlook for the cloud infrastructure market in 2025 and the long term is bright, so investors should consider seizing this opportunity.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Goldman Sachs Group, Microsoft, Nvidia, and Oracle. The Motley Fool endorses Gartner and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Artificial intelligence (AI) cloud spending is expected to surge again in 2025. Before that, I would like to introduce one stock that you should buy. Originally published by The Motley Fool
