Oracle Predicts A Bright Future

The shares took a hammering after the Internet bubble burst in 2000 but other than that it has been mostly onwards and upwards for database giant, Oracle. This is one of the great American growth shares, rising a staggering 3,933 times since the 1986 flotation.

Latest results were excellent with strong growth in all the key metrics but what catches the eye is what is happening to RPO [remaining performance obligations].

Our remaining performance obligations or RPO is now $99bn, up 52pc in constant currency. Now while we typically see a seasonal decline of RPO in Q1, we signed several large deals this past quarter, resulting in a sequential increase in RPO compared to the decline that we typically see based on our experience over the previous five years. Further, our cloud RPO grew more than 80pc and now represents nearly three-fourths of total RPO. And approximately 38pc of total RPO is expected to be recognized as revenue over the next 12 months, which reflects the growing trend of customers wanting the larger and longer contracts as they see firsthand how Oracle Cloud services are benefiting their businesses.

We spent $2.3bn on capex this quarter, given the demand that you see in our RPO growth and the additional demand we have and see in our pipeline, I expect the fiscal year 2025 capex will be double what it was in fiscal 2024.

Safra Ada Catz, CEO, Oracle, Q1 2025, 9 September 2024

I found this interesting article about Oracle.

One of the most pronounced shifts in the business world over the past two decades has been the ascent of technology companies among the world’s most valuable enterprises. Just 20 years ago, industrial and energy heavyweights General Electric and ExxonMobile topped the charts when measured by market cap, valued at $319bn and $283bn, respectively. Now, two decades later, technology leaders rule the roost.

Apple tops the list (as of this writing), and Microsoft is currently No. 2, with market caps of $3.4 trillion and $3 trillion, respectively. Nvidia‘s rise over the past 18 months has been nothing short of astonishing, adding nearly $2.2 trillion since early last year, climbing to $2.5 trillion and coming in at No. 3. Alphabet, Amazon, and Meta Platforms boast market caps of $1.9 trillion, $1.8 trillion, and $1.3 trillion, respectively. The common thread among these top players is that they were early adopters of artificial intelligence (AI) — even before the technology went viral in early 2023.

With a market cap of just $391bn, it might seem like wishful thinking to suggest that Oracle (ORCL 1.56pc) might be in the running for membership in the $1 trillion club. However, the business’s trajectory and management’s outlook suggest demand for generative AI could drive accelerating growth in the coming years.

Oracle’s suite of offerings, which includes database, cloud, and enterprise software, is used by 98pc of Global Fortune 500 companies. This gives the company an advantage as its customers seek to join the AI revolution.

This dynamic has helped fuel robust overall growth. During Oracle’s fiscal 2024 fourth quarter (ended May 31), revenue grew 3pc year over year to $14.3bn, while its operating income climbed 15pc — but that only tells part of the story.

During the fourth quarter call with analysts, CEO Safra Catz noted that customers had signed 30 AI contracts worth $12bn during the quarter, bringing the total to $17bn for the year, among them “the largest sales contracts” in the company’s history. Furthermore, CTO Larry Ellison said he believes the recent cloud deal to build Oracle Cloud Infrastructure (OCI) inside Microsoft Azure Cloud will “turbocharge [Oracle’s] cloud database growth.”

These new deals drove Oracle’s remaining performance obligation (RPO) — or contracts not yet included in revenue — up 44pc year over year to $98bn. It’s always a positive indicator when RPO grows faster than revenue, as it illustrates robust sales pipeline growth. In this case, it also shows that there is a strong demand for cloud and AI solutions among Oracle’s customers.

As such, the company’s 2025 guidance calls for revenue to accelerate in each successive quarter, resulting in double-digit revenue growth for the fiscal year. In the first quarter, Oracle expects its revenue growth rate to more than double sequentially to 6pc at the midpoint of its guidance, driven by cloud revenue growth of 22pc. This will fuel adjusted earnings per share (EPS) growth of 13pc. Given management’s commentary, each successive quarter will be even better.

The Motley Fool, 8 September 2024, Danny Vena

There is no question that Oracle is a player.

Today, Oracle has 162 cloud data centres, live and under construction throughout the world. The largest of these data centres is 800 megawatts, and it will contain acres of NVIDIA GP clusters able to train the world’s largest AI models. That’s what’s required to stay competitive in the race to build one, just one of the most powerful artificial neural networks in the world.

The stakes are high and the race goes on. Soon Oracle will begin construction of data centres that are more than a gigawatt. Building giant data centres with ultra-high apartments RDMA [remote direct memory access] networks and huge 32,000-node NVIDIA GPU clusters is something that Oracle has proven to be very good at. It’s the reason we’re doing so well in the AI training business.

It’s important to remember that we first developed those high-performance RDMA networks to interconnect our Exadata CPU cluster hardware that powers our Exadata Database cloud service. The Oracle Database Cloud service running on Exadata and Exascale RDMA clusters, provides an order of magnitude, better performance, better scalability, better reliability, and better security than other databases. And it’s still the world’s only autonomous, fully self-driving database. Our large and loyal customer base understands and appreciates the many technical advantages of using the Oracle database.

And those customers wanted us to find a way to make the very latest and best Oracle technology available on other clouds in addition to OCI. We found a way. With today’s AWS [Amazon Web Services] announcement, our customers will be able to use Oracle’s latest Exadata and Exascale RDMA clusters with the latest versions of our database software, from within the Microsoft Azure cloud, from within the Google Cloud, and from within the AWS cloud. This will enable customers to use the Oracle database anywhere and everywhere.

That has always worked well for our customers and for our database business. We believe our cloud partnerships with AWS and Microsoft and Google will turbocharge the growth of our database business for years to come. 

Larry Ellison, co-founder, chairman and chief technology officer, Q1 2025, 9 September 2024

Larry Ellison is 80 and worth $175bn but still works full-time at Oracle. Unlike the House of Lords of whose members I thought, I suspect incorrectly, that Lloyd George said ‘they toil not neither do they spin’, something Jesus did say of the lilies of the field according to the New Testament as recorded by Saint Matthew, well, unlike them, US billionaires do work hard and continue doing so when they could easily be living the life of Larry to coin a phrase.

I have been checking out something called OCI.

Oracle Cloud Infrastructure (OCI) is a set of cloud services that allows users to build and run applications and services in a hosted environment. OCI offers a variety of services, including: 

• High performance: OCI provides high-performance compute capabilities and storage capacity. 
• Integration services: OCI integration services can connect applications and data sources to automate processes and centralize management. 
• Security: OCI provides a secure, connected platform that can help unify security, governance, and data management. 
• Cost: OCI offers services that can cost less than other hyperscalers. 

OCI combines the elasticity of the public cloud with the control and performance of on-premises infrastructure. OCI is available worldwide in 14 regions, with plans to build additional regions. 

AI overview

Below is some of what Oracle had to say about OCI.

You’ve already seen today’s announcement of our partnership with Amazon Web Services, which has now joined Microsoft Azure and Google Cloud in making OCI and Oracle available in their respective clouds. Needless to say, we think our multi-cloud strategy will expand the ubiquity and popularity of our differentiated technologies, especially the Oracle Database.

So first of all, I want to remind you that that — remember that third leg of the stool I mentioned, which is our database and autonomous database, that is also part of OCI. And that is beginning to really expand.

And our multi-cloud agreements, again, will help OCI gross margins so that you know gross margins even this quarter as the percentage increased, regardless of the fact that we have a lot more OCI, and so our business is really only now starting to get real scale. And we have built OCI in a way and Larry can really expand on it, where it is extremely automated. The management of it is very automated. And our whole rollout as it grows, we make more money.

And as much as percentages are great, and again, our operating margin percentages continue to increase. and OCI includes not only base storage and compute and GPUs, but it also includes a lot of other capabilities, including the database, which have excellent margins, too. And of course, as you mentioned, our SaaS business, again, an excellent and at-scale business, even that business benefits from our expansion in OCI. And once again, even at its high margins continued to improve this past quarter.

Safra Ada Catz, CEO, Oracle, Q1 2025, 9 September 2024

And Larry Ellison added these remarks.

So let’s start with SaaS. As we go to Autonomous database, we get tremendous efficiencies. We’re moving Fusion and NetSuite to Autonomous database as we speak.

We’ve decided everything needs to move to autonomous for two reasons. First reason, when you have a completely autonomous database, there is the DBA, the database administrator is a robot. There is no human labor associated with managing the Oracle Autonomous Database. Now OK, that’s obviously a cost savings.

But more importantly, with no human labor, there’s no human error. It’s a huge security advantage we have over our competitors. There’s no mistakes to be made. There’s no human labor.

It’s all automated. And the potential — when you have everything completely automated, and it’s also truly elastic. I’m not going to go into exactly what that means. But it means that you’ve got a system running that certainly needs 500 microprocessors, you get those 500 for the three minutes you need it, and then you return them to the pool.

So that’s very different than how other databases work, which they may call — the cloud itself may be elastic in places, but their databases are typically not elastic. Autonomous is. So we use a lot less hardware. It’s a lot faster.

It’s a lot more efficient. It’s fully automated, no human labor, much more secure. And the margins for the autonomous database business are much higher than the traditional Oracle business. And I think those margins are — I mean, they’re stunningly high.

Similar margins on SAAS [software as a service] because SaaS runs primarily on that autonomous database. So we use hardware very efficiently. We use labor sparingly because labor is a security risk. When people are actually doing things manually, it’s a security risk, and it slows down our ability to expand.

Every Oracle data centre from the largest to the smallest is identical in features and functions, they only vary by scale. That means we have one suite of automation software that automates all of this. Nobody else does this. No one has that level of automation, that level of autonomy.

It allows us to get much better margins in our database business and our SaaS business and the rest of our cloud business. Our clouds are more automated, so we have very low labor costs. Our networks are much more efficient, the RDMA networks run so much faster. If you run twice as fast, our costs go down by half.

And our networks are much faster than the other clouds. So we think our potential as we scale, our potential to deliver much better margins than we’re currently delivering, is very real.

Larry Ellison, co-founder, chairman and chief technology officer, Q1 2025, 9 September 2024

And listen to what Ellison had to say about where technology is going.

Well, a lot of people think that, my God, I send a kid to college and then I’m done. They’re training over. I got four years of training, and then I can put the kid to work and they’ll be doing inferencing. And that’s not true.

This race goes on forever, to build a better and better neural network. And the cost of that training gets to be astronomical. When I talk about building gigawatt or multi-gigawatt data centres, I mean these AI models, these frontier models are going to — the entry price for a real frontier model from someone who wants to compete in that area is around $100bn. Let me repeat, around $100bn.

That’s over the next four or five years for anyone who wants to play in that game. That’s a lot of money. And it doesn’t get easier. So there are not going to be a lot of those.

I mean, there are not many places on the list of people who can actually build one of these frontier models. But in addition to that, there are going to be a lot of very, very specialized models. I can tell you things that I’m personally involved in, which are using computers to look at, biopsies of slides or CAT scans to discover cancer. Also, there are also blood tests we’re doing for discovering cancer.

Those tend to be very specialised models. Those tend not necessarily to use the foundational — the Groks, the ChatGPTs and the Llamas and the Geminis. They tend to be highly specialised models, trained on image recognition on certain data, I mean, literally millions of biopsy slides, for example, and not much other training data is helpful. So that goes on, and we’ll see more and more applications like that.

So, if your horizon is over the next five years, maybe even the next 10 years, I wouldn’t worry about, hey, we’ve now trained all the models we need and all we need to do is inferencing. I think this is an ongoing battle for technical supremacy that will be fought by a handful of companies and maybe one nation-states over the next five years at least, but probably more like 10. So this business is just growing larger and larger and larger. There’s no slowdown or shift coming.

Let me say something that’s going to sound really bizarre. Well, you’d probably say, well, he says bizarre things all the time. So why is he announcing this one? Let’s be really bizarre. So we’re in the middle of designing a data centre that’s north of the gigawatt that has already got building permits for three nuclear reactors. These are the small modular nuclear reactors to power the data centre. This is how crazy it’s getting. This is what’s going on.

Larry Ellison, co-founder, chairman and chief technology officer, Q1 2025, 9 September 2024

Nuclear-powered data centres; how incredible is that! And note his other words – no slowdown coming and $100bn as the entry ticket to be a serious player in GenAI.

Share Recommendations (11 September 2024)

Oracle ORCL

Arm Holdings ARM (see below)

Strategy – Don’t Give Up On The Technology Revolution

I am reassured to see 80-year-old Larry Ellison still fully involved in the exciting progress being made by the company he founded. These guys are successful because they do what they do for pleasure, not for money but it is cool to still be doing it at 80!

Keep an eye on Arm Holdings too which should be a major beneficiary as artificial intelligence is incorporated into mobile phones.

Arm Holdings ARM remains a “large-cap top pick” following the launch this week of the artificial intelligence-powered iPhone 16, whose release suggested the utilisation of an Arm-based A-18 processor in the Apple AAPL device, Morgan Stanley said Wednesday.

The chipmaker “remains our favored play on the emerging Edge AI opportunity,” the investment firm said.

“We think of Arm as more than a mobile CPU [central processing unit] story and instead look to the growing use of custom silicon on Arm as a strong driver of royalties’ expansion across the next 2-3 years at least,” Morgan Stanley said. “Drivers of custom silicon royalties already come from cloud AI, but this will shift in large part to mobile soon.”

Arm could also benefit from “any positive outcome in the upcoming QCOM litigation,” the firm said, referring to a legal dispute between Arm and Qualcomm QCOM over technology licensing.

Morgan Stanley also said that given Arm’s UK-centric IP [intellectual property] portfolio, the chipmaker is unlikely to get hit by potential new China restrictions over the near-to-medium term.

The firm has an overweight rating on the stock and a $175 price target.

MT Newswires, 11 September 2024