Oracle Benefits From AI Cloud Service Adoption: A Sign of More Upside?

Oracle’s ORCL collaboration with xAI to deploy its Grok models via the Oracle Cloud Infrastructure (“OCI”) is expected to further drive momentum in the company’s cloud services and license support revenues in the near term.

OCI spans domains like compute, databases and AI services, providing end-to-end solutions for enterprise workloads. Oracle’s 23 AI database has helped businesses integrate AI solutions by automating workflows and providing flexibility to tailor models to business-specific needs.

Oracle had previously demonstrated its ability to host, train and scale various models through partnerships with Cohere, LLAMA 2 and NVIDIA AI Enterprise. The latest partnership with xAI is expected to significantly increase OCI compute, storage and network usage. Additionally, the seamless deployment of Grok models is likely to encourage long-term contract renewals.

Looking forward, total cloud revenues are expected to grow 26-30% for the first quarter of 2026, and by over 40% for fiscal 2026. The company also noted that for fiscal 2026, cloud infrastructure revenues are projected to grow even more than 70%, up from 51% in the prior year.

The Competitive Landscape: ORCL’s Fight With the Giants

Oracle faces tough competition from players like Alphabet GOOGL and Amazon AMZN.

Alphabet’s Google Cloud invests heavily in custom AI chips called TPUs and recently introduced its latest version, Ironwood. The company recently launched the “Cloud Wide Area Network,” making Google’s private cloud network globally accessible. The recent inclusion of Gemini 2.5 and Flash into Alphabet’s Vertex AI Platform is expected to transform enterprise-AI sophistication.

Amazon’s cloud services are deployed via AWS. Amazon’s AI applications like Alexa+ and its latest AI chip, Trainium 2, are delivering massive improvements in performance and efficiency. Amazon’s Bedrock recently integrated Anthropic's Claude 3.7 Sonnet and Meta’s Llama 4 model family to build high-quality Generative AI applications. The company recently launched a preview version of Amazon Nova Act, designed to help developers break down complex tasks and perform commands in web browsers.

ORCL’s Share Price Performance, Valuation and Estimates

ORCL’s shares have appreciated 27.7% in the year-to-date period, outperforming both the Zacks Computer and Technology sector’s return of 5.5% and the Zacks Computer-Software industry’s appreciation of 14.6%.

Oracle’s shares have also outperformed Alphabet and Amazon in the year-to-date period. While shares of GOOGL dropped 8.4%, AMZN plunged 1.0%.

ORCL’s YTD Price Performance

Oracle trades at a three-year EV/EBITDA of 26.53X, substantially above the Zacks Computer-Software industry average of 19.86X. ORCL has a Value Score of D.

ORCL’s Valuation

The Zacks Consensus Estimate for ORCL’s fiscal 2026 revenues is currently pegged at $66.63 billion, indicating 16.08% year-over-year growth. The consensus mark for 2026 earnings is pegged at $6.71 per share, up 1.05% over the past 30 days. This indicates an 11.28% increase from the figure reported in the year-ago quarter.

Oracle Corporation Price and Consensus

Oracle Corporation price-consensus-chart | Oracle Corporation Quote

ORCL 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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