Microsoft‘s (NASDAQ: MSFT) stock surged nearly 1,000% over the past decade and turned it into the world’s Most worthy company, with a market cap of $3.2 trillion. That massive growth spurt was driven by the expansion of its mobile, cloud, and AI ecosystems under Satya Nadella, who became the company’s CEO in 2014.
Microsoft continues to be considered considered one of the market’s top AI stocks, but investors are probably already seeking the following tech stock that may replicate those gains over the following decade. Could that company be Oracle (NYSE: ORCL), which may be steadily expanding its cloud and AI ecosystems but has a smaller market cap of $350 billion?
The similarities and differences
Microsoft and Oracle operate different business models. Microsoft is a more diversified company and generates most of its revenue from its Windows operating system, Office productivity software, Azure cloud-based infrastructure platform, and other cloud-based services. It also sells ads in its Bing search engine, PC hardware through its Surface division, and video game products through its Xbox division.
Over the past decade, most of Microsoft’s growth stemmed from Azure and the conversion of its Office products and Dynamics customer relationship management (CRM) platform into cloud-based services. Its investments in OpenAI also allowed it to integrate the start-up’s generative AI tools into its own cloud-based ecosystem.
Oracle is taken into account considered one of the world’s top database software corporations. It initially established an early mover’s advantage with its on-premise applications, but Amazon and Microsoft pulled ahead with their very own cloud-based database services. To take care of pace with that shift, Oracle transformed its on-premise applications to cloud-based services and inorganically expanded its ecosystem with more enterprise resource planning (ERP), CRM, and healthcare IT management services. It also launched its own cloud platform, Oracle Cloud Infrastructure (OCI).
Oracle now ranks third inside the cloud-based database software market, behind Amazon and Microsoft, while OCI continues to be a tiny platform as compared with Amazon Web Services (AWS), Microsoft Azure, and Alphabet‘s Google Cloud. It also ranks third inside the CRM market behind Salesforce and Microsoft, and it stays a distant underdog inside the fragmented ERP market. That might be why Oracle isn’t often mentioned within the an identical breath as Microsoft or Amazon.
Oracle continues to be expanding its cloud and AI businesses
Oracle generated 38% of its revenue from its total cloud services in its latest quarter. By comparison, Microsoft generated 54% of its revenue from its cloud services last quarter.
Oracle plans to keep up expanding its cloud business to offset the slower growth of its on-premise, licensing, and support divisions. It expects the rising usage of its back office database and ERP applications, the expansion of OCI, and a recent AI infrastructure contract with Nvidia to drive that expansion and widen its moat.
In its latest earnings report, CEO Safra Catz said Oracle expected to “proceed receiving large contracts reserving cloud infrastructure capability for the reason that demand for our Gen2 AI infrastructure substantially exceeds supply — despite the actual fact we’re opening recent and expanding existing cloud datacenters very, very rapidly.”
But could Oracle replicate Microsoft’s gains?
In other words, Oracle should cash in on the expansion of the AI market, which Grand View Research expects to grow at a compound annual growth rate (CAGR) of 37% from 2023 to 2030. But a complete lot of those gains will still be offset by its slower-growing legacy businesses.
From fiscal 2023 (which ended last May) to fiscal 2026, analysts expect Oracle’s revenue to increase at a CAGR of 8% as its EPS rises at a CAGR of twenty-two%. A giant portion of that earnings growth will likely be driven by big buybacks. It already bought back 38% of its shares over the past 10 years, and it should maintain that tradition for the foreseeable future.
Those growth rates are stable, but they probably won’t turn Oracle into the following Microsoft. From fiscal 2013 to fiscal 2023 (which ended last June), Microsoft grew its revenue at a CAGR of 11% as its EPS rose at a CAGR of 14%. From fiscal 2023 to fiscal 2026, analysts expect its revenue and EPS to increase at a CAGR of 15% and 17%, respectively, since it continues to expand its cloud and AI ecosystems.
Assuming Oracle matches analysts’ expectations for the following three years, continues to grow its EPS at a CAGR of 20% from fiscal 2026 to fiscal 2033, and trades at 20 times earnings, its stock could greater than triple to $400 a share and lift its market cap to about $1.1 trillion. Which may be a robust 10-year gain, nonetheless it could not match Microsoft’s massive rally over the past decade. It could also still be a lot smaller than today’s Microsoft.
So in its place of wondering if Oracle will shake off its status as a dusty old tech stock and alter into the following Microsoft, investors should give attention to its core strengths: it’s successfully expanding its own cloud and AI businesses inside the shadow of its larger competitors, it’s returning a great deal of money to its shareholders, and its stock continues to be reasonably valued.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Leo Sun has positions in Amazon. The Motley Idiot has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Oracle, and Salesforce. The Motley Idiot recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.
Could Oracle Change into the Next Microsoft? was originally published by The Motley Idiot