Oracle Rises 44.5% YTD on Cloud Strength: Buy the Stock Now or Hold?

Oracle ORCL has delivered impressive returns in 2025, with shares surging 44.5% year to date, outperforming the broader Zacks Computer and Technology sector’s growth, driven primarily by extraordinary momentum in its cloud infrastructure business.

The company's first-quarter fiscal 2026 results revealed remarkable growth potential, with remaining performance obligations skyrocketing 359% year over year to reach $455 billion. While this explosive growth trajectory has captivated investors and propelled the stock to significant heights, several fundamental considerations suggest a more cautious approach may be warranted in the near term.

Cloud Infrastructure Powers Outstanding Growth

The database software giant posted total revenues of $14.9 billion in its fiscal first quarter ended August 2025, representing 12% growth in constant currency. More significantly, cloud revenues climbed 27% to $7.2 billion, with cloud infrastructure revenues specifically expanding 54% to $3.3 billion. Management provided remarkably ambitious guidance, projecting Oracle Cloud Infrastructure revenues to grow 77% to $18 billion in fiscal 2026, subsequently climbing to $32 billion, $73 billion, $114 billion, and ultimately $144 billion over the following four years through fiscal 2030.

This aggressive outlook stems from several multi-billion-dollar contracts signed during the quarter, including partnerships with major technology companies. The company's strategic positioning in artificial intelligence workloads has proven particularly compelling, with management noting they are now engaging directly with chief executive officers rather than traditional information technology buyers. Capital expenditures are projected at approximately $35 billion for fiscal 2026, reflecting the massive infrastructure investments required to support this anticipated growth trajectory.

The Zacks Consensus Estimate for fiscal 2026 revenues is currently pegged at $66.89 billion, suggesting growth of 16.54% from the year-ago quarter’s reported figure. The consensus mark for fiscal 2026 earnings is pegged at $6.80 per share, up 0.3% over the past 30 days.

Oracle Corporation Price and Consensus

Oracle Corporation price-consensus-chart | Oracle Corporation Quote

Recent AI and Cloud Announcements Strengthen Position

Oracle's October 2025 AI World conference in Las Vegas showcased the company's comprehensive AI strategy, with several announcements reinforcing its competitive positioning. The company unveiled Oracle AI Database 26ai, featuring native vector search capabilities and deeper interoperability with open standards, including Apache Iceberg and Model Context Protocol. The new Oracle AI Data Platform was introduced as a unified environment integrating generative AI models with enterprise data, simplifying the complex data preparation processes that often impede AI implementations.

Management also announced the AI Agent Marketplace with over 100 AI agents available to Fusion customers at no additional charge, alongside the AI Agent Studio, enabling enterprises to deploy and manage AI agents across multiple large language model providers. The company deepened its multi-cloud partnerships with both Google Cloud and Amazon Web Services, demonstrating Oracle's pragmatic approach to meeting customers where their data resides. Additionally, Oracle rolled out OCI Dedicated Region25, allowing enterprises to deploy full public cloud regions within their own data centers, starting with as few as three racks.

Cloud Market Dynamics and Competitive Landscape

The cloud infrastructure market remains fiercely competitive, with Amazon AMZN-owned Amazon Web Services, Microsoft MSFT Azure, and Alphabet GOOGL-owned Google Cloud Platform commanding substantial market positions. Amazon Web Services maintains its leadership position with approximately 30% market share, generating $30.9 billion in revenues during the second quarter of 2025, though growing at a slower 18% rate compared to competitors. Amazon recently signed a $38 billion deal with OpenAI, expanding its relationships with leading AI companies and committing more than $100 billion in capital expenditures for 2025 to strengthen infrastructure capacity.

Microsoft Azure has emerged as perhaps the most formidable challenger, reporting 39% revenue growth and surpassing $75 billion in annual cloud revenues, supported by its exclusive partnership with OpenAI and deep integration with enterprise Microsoft products. Microsoft's capital expenditures are projected to exceed $94 billion in fiscal 2026, reflecting aggressive infrastructure expansion. Google Cloud Platform, while smaller at $13.6 billion in quarterly revenues, demonstrated the fastest growth rate at 32%, with operating income more than doubling year over year. Alphabet committed between $91 billion and $93 billion in capital expenditures for 2025, emphasizing the intensity of competition across the cloud landscape.

Oracle's differentiation comes through its strategy of embedding native versions of its infrastructure directly within the major cloud providers' environments, exemplified by Oracle Database at AWS, Oracle Database at Azure, and Oracle Database at Google Cloud. Oracle has left major cloud competitors trailing significantly, with Microsoft advancing 20% and Amazon rising 13.2% over the same period.

ORCL Outperforms Sectors, Peers YTD

Valuation Concerns Present Near-Term Headwinds

Despite Oracle's compelling growth narrative, the stock currently trades at a price-to-earnings ratio of 32.73 times, notably above the Zacks Computer-Software industry average of 30.72 times and substantially elevated compared to Oracle's own five-year median of 22.13 times. This premium valuation reflects investor enthusiasm for the company's cloud transformation and artificial intelligence opportunities, but also introduces meaningful execution risk. Any disappointment in contract signings, slower-than-anticipated revenue conversion, or operational challenges in scaling infrastructure could trigger significant multiple compression.

ORCL's Forward P/E Depicts Premium Valuation 

Hold or Wait for Better Entry Point

Investors already holding Oracle shares may consider maintaining positions given the company's strengthened competitive positioning and substantial contracted backlog, providing revenue visibility. The aggressive guidance for cloud infrastructure growth, if achieved, would justify premium valuations over time. However, those contemplating new positions should wait for more attractive entry points, potentially following quarterly results that provide greater clarity on revenue conversion rates from the massive backlog, capital expenditure efficiency, or any moderation in the stock's valuation premium. The combination of premium valuation metrics, concentrated customer relationships, and uncertain timing of backlog conversion suggests that patience will likely be rewarded with better risk-adjusted entry opportunities in the coming quarters. Oracle currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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