Oracle winning numbers due soon. Can the tech giant keep its huge rally going?

Oracle stock celebrated like it was 1999 – but its big rally will soon be put to the test. oracle (ORCL) reports its fiscal second quarter results late Monday.

The database software company is on track to post its biggest annual stock market gain since 1999. Shares are up 76% year-to-date, including a 30% rally since Oracle’s last earnings release in September. (For more on Oracle’s big year, see How Oracle got its mojo back. What’s behind the AI ​​cloud push that’s driving its 80 percent stock gain?)

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Barclays analyst Raimo Lenschow said in a recent note to clients that it was difficult to call for near-term outperformance given the large recent run-up.

However, he remains optimistic about the long-term performance of Oracle shares.

“What investors need to see this quarter is a continuation of the revenue acceleration story, but also a third quarter guidance that supports the double-digit revenue growth target for FY25,” he wrote.

Two cloud numbers to keep an eye on

Oracle’s report will cover the quarter ended November. Analysts expect adjusted earnings to rise 11% to $1.48 per share, according to FactSet. Sales are expected to rise 9% to $14.1 billion.

But Oracle is a large company with many components. Investors are likely to be particularly focused on two metrics, Guggenheim analyst John DiFucci wrote to clients on Thursday.

They expect total cloud revenue to grow 24% year over year and cloud infrastructure as a service (IaaS) to grow 49%.

Cloud infrastructure in particular was the focus of investors. The Oracle Cloud Infrastructure business is becoming the fourth enterprise cloud option behind the much larger hyperscalers Amazon (AMZN), Microsoft (MSFT) and Google (GOOGL).

OCI has benefited from startups and other companies seeking access to it Nvidia (NVDA) chips and other computing infrastructure to support AI projects. DiFucci noted that Oracle expects its IaaS revenue to increase by at least 50% for the 2025 fiscal year ending in May.

Achieving targeted IaaS revenue growth for the coming second quarter will require “significant new annual recurring revenue growth,” DiFucci wrote, “but we trust management to provide insight into the timing of contract signings and go-lives has.”

Guggenheim advises Oracle to Buy with a price target of 220.

Oracle shares: backlog in focus

Meanwhile, Jefferies analyst Brent Thill wrote Thursday that investors may expect 52% growth for Oracle’s cloud infrastructure in the quarter. Expectations for Oracle overall are “elevated following the bullish analyst day in September.”

When Oracle reported first-quarter results in September, it said remaining performance obligations, or contracted work, increased 53% year-over-year to $99 billion.

This is a positive sign for overall demand. Thill said that Oracle needs to continue this strong backlog growth in its upcoming earnings report, “but Oracle also needs to start converting backlog into revenue for the stock to continue to perform.”

Jefferies rates Oracle stock a “Buy” with a price target of 220.

Can Oracle keep the software rally going?

Oracle stock has outperformed the broader enterprise software market this year. For nine months of the year, 2024 was a mediocre year for companies that sell software to other companies.

But things have changed quickly. The iShares Expanded Tech-Software ETF, which holds shares of more than 100 enterprise software companies, has risen 20% since the end of October. The rally has more than doubled IGV’s year-to-date profit.

Strong earnings results from companies such as Salesforce (CRM) and Snowflake (SNOW) have helped increase confidence that AI can help boost software spending.

Monday’s report from Oracle will provide another test of this rally. MongoDB (MDB), a smaller competitor in the database software market, also reports results on Monday.

Oracle Stock: 94 Composite Rating

On the stock market today, Oracle shares fell more than 1% recently to 185.96. Shares rallied to an all-time high of 196 late last month before declining slightly. The stock found support near its 21-day moving average in Thursday trading.

Meanwhile, Oracle stock has an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

Additionally, Oracle’s IBD Relative Strength Rating is 93 of 99. The RS Rating means that Oracle outperformed 84% of all stocks in the IBD database last year.

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