Oracle’s Cloud Conquest|Climbing Mount Hyperscaler with AI Boots

7 дней назад

Will Oracle Cloud Infrastructure aka OCI Emerge as the 4th Hyperscaler?

Although OCI hasn’t yet reached the scale of the top three cloud giants (AWS, Azure, GCP), it’s rapidly advancing, much like d’Artagnan joining the musketeers. Riding the AI wave, Oracle’s Infrastructure as a Service (IaaS) segment surged by 52% to $2.4 billion in Q2. Over the past year, OCI has overtaken Salesforce and IBM, surpassing even Snowflake. Its next target, Alibaba Cloud, grew just 7% YoY to $4.2 billion in Q3. However, this impressive growth comes at a price—Oracle’s capital expenditure is expected to double in FY25 to meet AI demand.

Oracle Q2 FY25 Highlights

Key Metrics
-Remaining Performance Obligations (RPO): A measure of future revenue from existing contracts. RPO grew 50% YoY, with Cloud RPO jumping nearly 80%, reflecting strong momentum. Sequentially, total RPO declined slightly from $99 billion in Q1 to $97 billion in Q2. 39% of this is expected to convert into revenue over the next year.
-Cloud Services Revenue: Up 24% YoY to $5.9 billion:
-IaaS: Grew 52% YoY to $2.4 billion, up from 45% in Q1, driven by OCI adoption for high-performance workloads and multi-cloud deployments.
-SaaS: Increased 10% YoY to $3.5 billion, with stable demand for cloud-based ERP, HCM, and CRM solutions.
- Fusion Cloud ERP: Gained 18% YoY to $0.9 billion.
-NetSuite Cloud ERP: Rose 19% YoY to $0.9 billion.
- Total Revenue: Increased 9% YoY to $14.1 billion, missing estimates by $20 million.
-Cloud Services & License Support: Up 12% YoY to $10.8 billion, with cloud services alone growing 24% YoY to $5.9 billion.
-Cloud License & On-Premise: Up 1% YoY to $1.2 billion.
-Hardware: Declined 4% YoY to $0.7 billion.
-Services: Dropped 3% YoY to $1.3 billion.
-Margins: Gross margin held steady at 71%, while operating margin improved 2 percentage points to 30%.
-Non-GAAP EPS:$1.47, missing estimates by $0.01

Cash Flow & Balance Sheet
-Operating Cash Flow (TTM):** $20.3 billion (+19% YoY).
- Cash & Cash Equivalents:** $11.3 billion.
-Debt: $88.6 billion.

Q3 FY25 Guidance
- Revenue growth of 7%-9% YoY (10% expected).
- Cloud revenue projected to grow 25%-27% YoY, accelerating further.

Analysis and Insights

1.Momentum in Cloud Infrastructure
Oracle’s focus on AI workloads is paying off, with major clients like Meta, Uber, and TikTok driving GPU consumption up by 336%. The company also unveiled the largest AI supercomputer, featuring 65,000 NVIDIA H200 GPUs. However, a potential TikTok ban in the U.S. could pose a $2 billion revenue risk.

2.Growth Despite Missed Targets
While revenue and adjusted earnings missed estimates due to slower SaaS growth, cloud revenue of $5.9 billion was just shy of the $6 billion forecast. Shares dipped post-earnings but remain up nearly 70% year-to-date, exceeding most investors' expectations

3.Capex Surge for AI
Capital expenditures reached $4 billion this quarter, a sharp increase from under $7 billion in FY24. Management expects FY25 Capex to double, driven by AI demand, resulting in negative free cash flow ($2.7 billion used) for the quarter. These investments align with industry trends but may stretch the balance sheet.

4.Expanding Multi Cloud Partnerships
Oracle’s partnerships with Meta, AWS, Azure, and Google Cloud enhance its relevance in multi-cloud environments. These alliances enable seamless workload interoperability and help Oracle compete effectively while broadening its customer base.

5.Balance Sheet Challenges
Oracle’s net debt of $80 billion, despite robust $20 billion annual operating cash flow, restricts its ability to pursue aggressive growth strategies or acquisitions. Rising Capex could further limit flexibility.

6.Bullish Long-Term Outlook
Management projects total cloud revenue to exceed $25 billion in FY25, fueled by AI demand and OCI’s competitive positioning. Analysts remain optimistic about Oracle’s prospects, particularly in multi-cloud ecosystems and generative AI workloads.

This explains why Larry Ellison envisions Oracle’s data centers expanding tenfold