Oracle stock (ORCL) offers cloud-fueled upside despite 60% year-over-year rally

Oracle’s stock (ORCL) has gained remarkable momentum, rising 60% over the past year, marking one of its strongest year-long performances since the dot-com boom of 2000. Despite this terrific rally, which may mean the stock has gotten ahead of itself, I think the cloud and enterprise software solutions provider is still reasonably valued, with potential for further gains. Specifically, Oracle’s revenue and earnings are likely to continue accelerating in the coming years, driven by strong growth in its cloud segments. Therefore, I am bullish on the stock.

Cloud wave accelerates strong 1st quarter 2025 Results

Oracle’s latest Q1 2025 results highlighted the company’s growing momentum, particularly in its cloud divisions, reinforcing my bullish view on the stock. Specifically, Oracle kicked off Fiscal 2025 on a high note, with record Q1 revenue of $13.3 billion, up 7% year-over-year. While the 7% year-over-year increase may not seem particularly impressive at first glance, the real story lies within the company’s cloud divisions, which experienced phenomenal growth.

Oracle’s cloud revenue, which combines IaaS and SaaS, increased by 21% and reached 5.6 billion. Cloud Infrastructure (IaaS) revenue increased by 45%. In addition, Cloud Application (SaaS) revenue grew 10%, driven in part by solid adoption of Fusion Cloud ERP and NetSuite, which both saw double-digit gains of 16% and 20%, respectively. The big gains in Oracle’s cloud infrastructure segment can be attributed to the expanded adoption of Oracle Cloud Infrastructure (OCI) and critical partnerships. These included a notable multi-cloud deal with AWS, which will see Oracle’s latest database technology integrated into AWS data centers.

I believe these developments are a significant differentiator that helped Oracle capture more cloud workloads. More importantly, Oracle’s growth prospects appear increasingly potent as cloud services make up an ever-larger portion of its revenue, eclipsing its traditional software licensing and hardware business. In my view, this ongoing transition away from its traditional on-premise offerings positions Oracle for sustainable top-line acceleration.

Profitability also gets a boost from Cloud Divisions

In addition to boosting the top line, Oracle’s expanding cloud divisions have driven significant improvements in profitability, further reinforcing my bullish outlook. In fiscal 1Q, GAAP operating income margin increased to 30% and adjusted operating income increased to 43%, up from 26% and 41%, respectively. This margin expansion clearly highlights the growing impact of high-margin cloud revenue on Oracle’s overall revenue mix. Meanwhile, management’s continued focus on automation and efficiency, such as leveraging autonomous databases and optimizing cloud data center operations, also contributed to lower operating costs and improved margins.

These margin gains, in turn, translated into a significant boost in Oracle’s earnings. GAAP EPS increased 20%, while adjusted EPS increased 17%. Those numbers far outpaced revenue growth, showing how Oracle can leverage the ongoing shift in its sales mix to drive outsized bottom-line results. As cloud revenue grows and becomes an even bigger part of Oracle’s total revenue, the fairly impressive margin gains and EPS growth are likely to continue — especially if revenue growth accelerates further, as expected.

Wall Street estimates and valuation

Wall Street analysts also predict an acceleration in Oracle’s revenue growth. Specifically, consensus estimates predict revenue growth of 9.7% in Fiscal 2025, increasing to 12.0% in Fiscal 2026 and 14.3% in Fiscal 2027. As far as I can tell, these growth estimates are based on the expectation that Oracle’s cloud initiatives, including partnerships with major hyperscalers such as Amazon ( AMZN ), Microsoft ( MSFT ), and Alphabet ( GOOGL )( GOOG ), will continue to generate additional turnover.

Similarly, analysts expect a steady increase in Oracle’s EPS, forecasting growth rates of 13.1%, 13.7%, and 16.4% for fiscal years 2025, 2026, and 2027, respectively. These forecasts align well with Oracle’s expected revenue acceleration and margin improvement – trends.

Therefore, despite the stock’s extended rally over the past year, I think Oracle is reasonably valued, trading at just over 29 times this year’s projected EPS. Given the expected acceleration in revenue and earnings growth, I don’t think the current multiple represents a worrisome premium. In fact, given that analysts have historically been conservative when rating Oracle, the stock could have further upside from current levels as the company’s cloud transformation continues to unfold.

Is ORCL stock a buy?

Wall Street analysts seem a bit more cautious about Oracle’s future prospects. Specifically, Oracle stock has a moderate buy, with recent analyst ratings of 19 buy and 13 hold ratings over the past three months. However, at $178.04, the average ORCL stock price target implies a downside potential of 1.86%.

For the best guide on buying and selling ORCL stock, see Brent Bracelin. He is the most accurate and profitable analyst covering the stock (on a one-year time frame), with an average return of 40.21% per share. rating and a perfect 100% success rate.

Final thoughts

In conclusion, Oracle’s exceptional cloud-driven growth, expanding margins and therefore even more impressive earnings growth clearly outline its ongoing transformation and promising future. With Oracle’s cloud solutions showing rapid adoption of hyperscalers, I believe the company remains well positioned to maintain its upward trajectory in the top and bottom lines. Therefore, despite last year’s prolonged rally, which may raise concerns about the stock’s valuation, I think Oracle is reasonably priced at today’s earnings multiple, with room for upside as the current narrative materializes.

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