One Cheap AI Stock That Could Go Parabolic

Companies benefiting from AI have seen shares rise in 2024. This is seen by Nvidia, Palantir, Arm Holdings, and Super Micro Computer's impressive growth. Due to their improved AI credentials, some of these stocks have skyrocketed. Oracle (NYSE: ORCL) may go parabolic with AI.

Oracle's last earnings report boosted its AI credentials. Oracle shares are up 21% this year, but its fiscal 2024 third-quarter earnings on March 11 boosted the market last week.

Stock rose almost 11% in a single session as investors hailed the company's better-than-expected revenue and profitability for the three months ending Feb. 29, 2024. Enterprise database software provider Oracle saw strong cloud revenue growth last quarter due to AI application demand.

Overall revenue rose 7% to $13.3 billion, with cloud revenue rising 25% to $5.1 billion. To $1.41 per share, non-GAAP earnings rose 16%. Oracle expects 4%–6% revenue growth this quarter.

Oracle's remaining performance obligations (RPO) rose 29% year over year to a record $80 billion due to "large new cloud infrastructure contracts" signed during the quarter, according to CEO Safra Catz in the press release. RPO is the total value of a company's future contractual commitments, therefore quicker increase in this statistic than sales shows Oracle is winning new contracts that could boost its future earnings.

Catz said that Oracle may "continue receiving large contracts reserving cloud infrastructure capacity because the demand for our Gen2 AI infrastructure substantially exceeds supply -- despite the fact we are opening new and expanding existing cloud datacenters very, very rapidly." Oracle can serve over 40 AI-related bookings worth over a billion dollars from last quarter with this capacity augmentation.

Oracle also wants to drive the cloud AI infrastructure market by adding new generative AI features for sales, marketing, HR, finance, and supply chain. Oracle claims to offer over 50 generative AI use cases on its cloud architecture.

That's why Oracle's cloud-based AI products are attracting customers and growing its business. The company's cloud revenue climbed faster than Amazon Web Services' 13% year-over-year growth in the prior quarter and Google Cloud's 25%. The company's strong revenue pipeline suggests it could challenge Microsoft Azure, which had 30% cloud growth last quarter. The cloud AI market might reach $887 billion in 2032, up from $43 billion in 2022. Oracle appears to be starting a huge growth curve.

Investors are receiving a nice stock deal. Oracle stock has a trailing P/E of 33 and trades at 6.7 times revenues. The average sales multiple of U.S. technology equities is 7.1, while the P/E ratio is around 45. Oracle's projected P/E ratio of 18 is likewise lower than the Nasdaq-100's 28 forward earnings multiple (using the index as a tech company proxy).

The fast-growing AI unit might help the corporation beat Wall Street's earnings forecast. If Oracle's earnings rise to $7.11 per share in fiscal 2026 and it trades at 31 times trailing earnings (in line with the Nasdaq-100), its stock price might rise to $220 per share in two years. It would rise 70% from current levels.

However, if the market values Oracle higher due to its growing AI potential, the stock may sustain its recent rise and go parabolic. Oracle is a good AI stock at an excellent value, so investors should buy it before it rises.

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