Oracle(NYSE: ORCL) has been a gentle performer on the stock market over the past five years, delivering respectable gains of 230% to investors and outperforming the Nasdaq Composite‘s 143% jump by a handsome margin. However the technology giant has been under pressure this 12 months.
Shares of the corporate that is known for providing database management and cloud services have dropped 7% in 2025 as of this writing, roughly in keeping with the Nasdaq’s move. Oracle’s recently reported results for the third quarter of fiscal 2025 (ended on Feb. 28) didn’t help matters; the stock dropped following the discharge of its report on March 10, but has since recovered.
The corporate’s anemic growth wasn’t ok to satisfy Wall Street’s expectations, while poor guidance added to the gloom. But savvy investors can think about using the pullback as a buying opportunity since there are clear signs that the corporate is ready to step on the gas in the long run. The large opportunity within the cloud infrastructure market could send Oracle’s stock soaring over the subsequent five years.
Investors were quick to press the panic button following the corporate’s latest results because the 8% year-over-year increase in revenue and 4% jump in adjusted earnings weren’t enough to satisfy consensus estimates.
Furthermore, management’s forecast of a 9% increase in revenue in the present quarter on the midpoint is barely lower than the 11% that analysts were expecting.
But specializing in Oracle’s near-term performance and overlooking its long-term forecast is like missing the forest for the trees. The remarkable demand for the corporate’s cloud infrastructure for artificial intelligence (AI) training and inference is resulting in phenomenal growth in its backlog.
This is obvious from the 62% year-over-year increase in Oracle’s remaining performance obligations (RPO) last quarter to $130 billion. The metric refers to the full value of an organization’s contracts which are yet to be fulfilled, and it’s value noting that this metric grew at a much faster pace than the corporate’s top line last quarter.
Oracle management identified on the most recent conference call with analysts that the quarter was its strongest ever when it comes to bookings. The corporate added $48 billion value of recent contracts to its backlog. At the identical time, Oracle is constrained by capability. The demand for the corporate’s cloud infrastructure is exceeding supply as more corporations are turning toward Oracle’s offerings to coach and deploy AI models and applications.
Management adds that its cloud infrastructure is “faster and, due to this fact, cheaper than our competitors.” The nice part is that the demand for Oracle’s cloud infrastructure could continue to grow at a terrific pace through the tip of the last decade. Goldman Sachs is estimating the cloud infrastructure-as-a-service (IaaS) market will generate $580 billion in annual revenue by 2030.
The pace of growth in Oracle’s RPO and the impressive rate at which it’s signing recent contracts suggest that the corporate is indeed on its solution to cornering a lion’s share of the massive addressable opportunity. Importantly, the booming size of Oracle’s RPO is ready to translate into stronger growth for the corporate in the approaching years.
Oracle is expecting its revenue growth in the subsequent fiscal 12 months to speed up to fifteen%, followed by a stronger jump of 20% in fiscal 2027. Each these numbers are higher than what the corporate was previously anticipating. Oracle had guided for $65 billion in fiscal 2026 revenue in September last 12 months, but it surely now believes that it might hit $66 billion in revenue within the upcoming fiscal 12 months.
Meanwhile, a 20% increase in its revenue in fiscal 2027 would send its top line to greater than $79 billion. That is higher than what analysts predict.
Investors would do well to notice that Oracle could find yourself exceeding its own expectations in the long term considering the terrific pace at which it’s increasing its data center capability to satisfy demand. Management goes to double the capability of its data centers in the present fiscal 12 months, and it plans to triple the identical by the tip of the subsequent fiscal 12 months.
So, it is simple to see why Oracle is expecting an acceleration in its revenue growth, as higher data center capability will enable it to satisfy more of its RPO. That, in turn, should ideally result in strong growth in the corporate’s bottom line.
In September last 12 months, Oracle projected that its earnings could increase at an annual rate of greater than 20% through fiscal 2029. Nevertheless, management’s comments on the most recent earnings conference call suggest that it could do higher.
Assuming Oracle can clock a 25% annual earnings growth rate over the subsequent five years, its bottom line could jump to $18.31 per share by fiscal 2030 (using its projected fiscal 2025 earnings of $6.00 per share as the bottom). Oracle is currently trading at 21 times forward earnings, a reduction to the tech-laden Nasdaq-100 index’s forward earnings multiple of 25.
If the market decides to place a better valuation on Oracle and it trades at 25 times earnings in five years, that might put its stock price at $458. That might be a 197% jump from the stock price as I write this.
Investors should consider adding this AI stock to their portfolios following its recent drop. It shouldn’t be just attractively valued straight away; it has the potential to deliver healthy gains in the long term.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Goldman Sachs Group and Oracle. The Motley Idiot has a disclosure policy.