Unyielding Synthetic Intelligence (AI) Shares to Acquire Prior to 2024's Conclusion

Advancement-prone Synthetic Intelligence (AI) Shares to Acquire Prior to 2024's Conclusion

AI has significantly propelled Oracle (ORCL -1.10%) in 2024, with the cloud infrastructure and database software provider's shares soaring 74% thus far, as of the current writing.

This significant surge in Oracle's stock isn't unexpected, given the significant boost to its business due to the burgeoning demand for its cloud infrastructure, which companies rent to train and deploy AI models. The positive trend in demand for cloud AI services has allowed Oracle to develop a robust revenue stream, anticipated to boost the company's growth at a remarkable pace.

The market for cloud-based AI services, which Oracle's cloud infrastructure serves, is still in its nascent stages of growth. This early growth phase is the primary reason why this AI-driven stock might sustain its magnificent growth trajectory in 2025 and beyond.

Here's why investing in Oracle stock appears to be a smart move.

Oracle's AI-driven growth prospects indicate a promising future

During Oracle's fiscal 2025 first-quarter earnings report (concluded Aug. 31) in September, it reported a 8% year-over-year revenue growth to $13.3 billion. More notably, the company predicted fiscal 2025 growth to surpass the double-digit mark due to robust growth in cloud infrastructure revenue.

Oracle's full-year projection suggests that its revenue growth will accelerate over the 6% increase it experienced during fiscal 2024 to $53 billion. Consequently, the company's revenue could potentially reach $58.3 billion this year. Analysts project that Oracle's revenue growth will accelerate in the following fiscal years as well.

It's not unforeseeable for the company to meet Wall Street's expectations given that it started the first quarter of fiscal 2025 with a 53% increase in its remaining performance obligations (RPO) to $99 billion. To put this into perspective, Oracle's RPO increased 44% in the fourth quarter of fiscal 2024.

The increase in this metric is favorable for Oracle, as the RPO represents the future value of unfulfilled contracts. Although the figure could be higher, Oracle stated that the demand for cloud infrastructure services exceeds the available supply. Therefore, the company is planning to increase its capacity using Nvidia's graphics processing units (GPUs) to establish large data centers, aiding customers to train extensive AI models.

Oracle's data centers currently serve 85 regions globally, and it has another 77 in progress or planning stages. This expansion should enable Oracle to cater to the escalating demand for its cloud infrastructure effectively. Remarkably, its cloud-related RPO increased over 80% in the last quarter and now comprises three-fourths of its total RPO. There's ample room for growth in this sector, given the rapid increase in demand for cloud-based AI services.

Oracle reported a 162% year-over-year increase in cloud-native AI customers in the previous quarter. The total value of its AI-specific contracts during Q1 amounted to $3 billion. Goldman Sachs estimates that the cloud infrastructure-as-a-service (IaaS) market that Oracle operates in could be worth a staggering $580 billion by 2030, accounting for 29% of overall cloud spending of $2 trillion by 2030's end.

Goldman Sachs adds that the generative AI-based cloud market could contribute between $200 billion to $300 billion of the overall market. Oracle is well on its way to capitalizing on the multibillion-dollar opportunity, as its cloud IaaS revenue grew 46% year-over-year in Q1 to $2.2 billion. Additionally, the fact that it secured $3 billion worth of AI-related cloud contracts during the same quarter suggests that this business is poised for stronger growth in the near future.

As a result, it was not a surprise when Oracle's management anticipated more robust growth in cloud infrastructure revenue in the current fiscal year, in comparison to the previous period. Moreover, the long-term potential in this market is the reason behind Oracle's upward revision of its long-term growth forecast, which could lead to additional stock appreciation in the long run.

The stock's valuation and long-term growth prospects justify the investment

Oracle projects to reach $66 billion in revenue in fiscal 2026, marking a 13% increase above its fiscal 2025 projections. Furthermore, it anticipates at least 10% growth in its earnings per share next year. However, in fiscal 2029, Oracle foresees its top line exceeding at least $104 billion. That would translate into a three-year compound annual growth rate surpassing 16% between fiscal 2026 and fiscal 2029.

Considering that Oracle is currently trading at 29 times forward earnings, compared to the tech-heavy Nasdaq-100 index's forward earnings multiple of 31.3, there is still an opportunity for investors to invest. The substantial increase in Oracle's revenue growth, along with the accelerated boost in its bottom line, points toward enhanced earnings power long-term, which should allow this cloud stock to maintain its impressive stock market momentum in the long run.

Due to Oracle's robust growth in its cloud-based AI services, investors might consider allocating funds to further their investing portfolio in Oracle stock. The company's projected revenue of $66 billion in fiscal 2026, a 13% increase from its 2025 projections, underscores its potential for significant finance gains.

With Oracle's current forward earnings multiple of 29 times, and the tech-heavy Nasdaq-100 index's forward earnings multiple of 31.3, the company's stock might still be undervalued, making it an attractive investment opportunity for finance enthusiasts seeking long-term growth prospects.