Oracle gave a glimpse of the power AI has on its business. It was a big week for Oracle. After a huge tech sell-off in August, Oracle shares barely ended the month in the green.
Last week was another story altogether. The stock added 14% over the week, touching a record high on Friday, as investors reacted to a robust revenue forecast for fiscal 2026 and beyond. Oracle is now the second-best performing technology stock this year behind Nvidia, up 54%.
Barclays analyst Raimo Lenschow wrote to clients Thursday: “Oracle has been able to create multiple AI capabilities that enhance its standard SaaS offerings and make the solution more powerful.” The firm sees shares “continuing an upward path.”
Oracle’s rally is a reminder that the recent churn in tech stocks could open up opportunities in the software sector. Investors have been waiting for proof that software companies will benefit from their investments in generative artificial intelligence. Software stocks have trailed the broader tech sector this year.
Even with Oracle’s gains, the S&P 500 Software & Services subsector is up only 12% year to date, trailing the tech sector’s more than 26% gain in 2024. Software stocks have suffered as revenue growth softened for the past three years, and investors remain skeptical about its return. Part of the slowdown is because the shift to cloud is now in its third decade.
At the start of 2024, a weaker economy made it even harder to sell software. This macro uncertainty resulted in small- to mid-size companies scaling back software spending. On top of that, with the emergence of AI, companies have been reallocating funds to prioritize projects in the emerging category.
AI could help drive a new cycle of growth. For perspective, the software industry has a 20-year median growth rate of 40%, but from 2017 until 2024, growth has been below that mark. Despite the controversy around where industry growth is headed, there are clear signs of momentum at Oracle, Microsoft, and SAP, analysts say.
Legacy firms that dominate market share are showing early signs of capitalizing on the AI wave. Their deeper pockets allow them to invest and scale new products, regardless of interest rates or funding dynamics, solidifying their market dominance.
billionaire investors drive Oracle growth
Pat Walravens, head of technology research at Citizens JMP, said: “Over the last 20 years, the software industry has matured.” Investors are “looking for companies that have a product cycle that is helping accelerate growth.
For Oracle, that’s its cloud infrastructure — a service that has improved Oracle’s fundamental growth story, Walravens argued. “For the first time in a dozen years, you’re looking at organic growth going back to the double digits,” Walravens said, highlighting one of the major takeaways from its fiscal first-quarter earnings Monday. Oracle’s investor day that followed the earnings report only served to boost Wall Street’s confidence in its growth trajectory.
Oracle raised its 2026 revenue target to $66 billion, slightly up from its previous forecast of $65 billion. The company set a revenue target of $104 billion for 2029, suggesting a 16% annual growth rate from 2026 to 2029, much higher than the expected 9%. Oracle also projected a 20% yearly increase in non-GAAP earnings per share by 2029.
Bernstein analyst Mark Moerdler, who called the stock his top investment idea, raised his price target to $201, or 24% above the stock’s $162.03 closing price on Friday. He noted that Oracle is “growing significantly faster than their peers in that market space.”
Moerdler added that Oracle’s infrastructure and platform innovations driven by AI are not fully priced into the stock by investors. Oracle is more resistant to the software industry’s slowdown because of its early investment in GPU infrastructure – the hardware and software that supports the use of graphics processing units in cloud computing.
This strategic move positioned Oracle as a key player in AI, fueling growth in its infrastructure as a services (IaaS) business. “What Oracle did really well is they saw where the puck was going to be and they skated to it,” Walravens said. Oracle’s proactive approach led to major contracts, including billion-dollar deals with companies like OpenAI.
This boosted Oracle’s contract values, with bookings reaching $99 billion in the quarter ended Aug. 31 — up 53% from a year ago, which is an acceleration from the prior quarter’s 44% year-over-year growth. Oracle Cloud Infrastructure (OCI) is central to this growth, offering a suite of services for AI-driven workloads.
Demand for OCI continues to rise, with a growing pipeline, leading the company to expect capital expenditures to double by fiscal 2025 to support AI-driven cloud capacity. Oracle is not alone in leveraging AI for growth. Microsoft stands out due to its strategic positioning and significant AI investments.
Its dominance across all layers of the cloud stack – applications, infrastructure, and platforms – positions it as a leader in the AI-driven future of software. Oracle’s and Microsoft’s efforts in integrating AI capabilities into their respective cloud services demonstrate the broader trend of software giants capitalizing on AI to drive growth and innovation in the tech industry.
