Oracle (NYSE:ORCL) shares soared by 12.7% to $139.60 on Wednesday morning, reaching a record high. The stock has surged about 30% this year as the company focuses on expanding its cloud infrastructure unit. This division, which rents computing power and storage, competes with Amazon, Microsoft, and Google, and is seen as Oracle’s major growth driver despite contributing a small portion of total sales.

In the past two quarters, Oracle has secured its largest sales contracts ever, driven by massive demand for training AI large language models in the Oracle Cloud, according to CEO Safra Catz. She announced that revenue growth is expected to increase by double digits in the fiscal year ending May 2025, propelled by strong demand for AI workloads. Growth should accelerate as the cloud unit’s capacity catches up with demand.

Oracle also announced a new agreement to make its database available on Google’s cloud infrastructure. A similar deal with Microsoft, announced in late 2023, is expected to significantly boost cloud database growth, said Oracle Chairman Larry Ellison.

OpenAI, which has received substantial funding from Microsoft, will use Oracle’s cloud infrastructure for additional capacity. Oracle has gained a reputation for success with generative AI startups, boasting customers like Reka, MosaicML, and Elon Musk’s xAI. AI technology requires enormous computing power, making Oracle’s cloud services crucial.

“The world’s largest cloud companies and the most successful AI companies choose Oracle Cloud services and data centers,” Ellison said during a conference call following the company’s fiscal fourth-quarter results.

Undeniable Momentum

The momentum in Oracle’s cloud infrastructure business is undeniable, with the OpenAI announcement adding another positive data point in AI, according to Evercore ISI analyst Kirk Materne. Bloomberg Intelligence analyst Anurag Rana suggested that the demand for AI workloads in Oracle’s cloud could propel it to become the fourth-largest cloud provider.

Catz projected more than 50% growth for the cloud infrastructure unit in the current fiscal year. Oracle reported that total remaining performance obligations, a measure of future contracted sales, increased by 44% to $98 billion as of May 31, surpassing the average estimate of $73.9 billion.

Revenue from the cloud unit rose 42% to $2 billion, slightly above analysts’ expectations of $1.97 billion. Total revenue grew 3.3% to $14.3 billion, below the $14.6 billion average estimate. Excluding certain items, profit was $1.63 per share, compared to analysts’ expectations of $1.65.

Software Lull

Underwhelming results from peers like Salesforce and Workday have raised concerns that technology budgets are shifting from application software to AI tools. Oracle’s cloud applications business, including its Fusion apps for corporate finance, saw sales increase 10% to $3.3 billion, a slowdown from the previous quarters’ growth of around 14%, and below analysts’ estimates.

The new partnerships are expected to accelerate growth in Oracle’s cloud infrastructure business, potentially offsetting the slowdown in applications, according to Rana.

Oracle’s results have been affected by its health unit, which includes Cerner, the electronic health records business acquired in June 2022 for $28 billion. Oracle is transitioning Cerner’s legacy software to the cloud, but has faced challenges like customer departures and the renegotiation of a federal contract. Cerner impacted revenue growth in the 2024 fiscal year by 2%, said Catz. Oracle will no longer break out Cerner’s financial results during earnings calls as it is now considered to be in a growth phase.

Additionally, Oracle will be exiting its advertising business, which generated only $300 million in the fiscal year ending May 31.

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