Wolfe Research Upgrades Oracle (ORCL) to Outperform, 'accelerating top-line and bottom-line growth from OCI adoption and AI tailwinds'
Wolfe Research analyst Alex Zukin upgraded Oracle (NYSE: ORCL) from Peerperform to Outperform with a price target of $130.00.
The analyst comments "Our entire call is based on increased confidence and conviction that OCI will become the engine that accelerates top and bottom line growth for the company over the next three years. Driven by architectural cost advantages, intelligent partnerships, and an early mover advantage in GenAI, we see OCI doubling market share (2% to 5%) by CY25. The reason we are doing this upgrade before earnings is not because we are making a call on the quarter, but rather we see the potential for a solid 4Q report coupled with AI narrative tailwinds to drive a narrative re-rating from today's high teens EPS multiple to somewhere closer to the mid-20's. We see a top line beat driven by Cloud outperformance, as well as a potential 1Q guide ahead of consensus. While we have spent the last year in a state of heightened skepticism around OCI's growth opportunity, the consistently improving tone of our checks has become impossible to ignore. We believe that ORCL has created a meaningful 2nd mover architectural and cost advantage around Gen 2 OCI, that competitors are either unable or unwilling to match. With our belief that current industry cloud optimization tailwinds are here to stay for years, not quarters, we see that benefiting OCI. Aside from cost driven share gains, OCI also has the one thing that every AI startup is asking for today, spare GPU capacity. Similar to getting those first cloud workloads during Covid, sometimes timing is everything. In addition, we see ORCL's investment in and plans to use Cohere to sell LLMs as a solid second option to the MSFT OpenAI partnership giving enterprise customers a real choice. Given this dynamic combo, we get enough conviction to raise our estimates and call for accelerating top and bottom-line growth through FY26, driven by a 50% + growth CAGR in OCI. We upgrade to Outperform and raise our Price Target to $130, or 22x CY24 EPS, a slight discount to mega-cap software peers at 25x."
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Shares of Oracle closed at $109.85 yesterday.