By Akriti Shah
March 11 (Reuters) - Oracle shares surged about 10% before the bell on Wednesday after the software giant's upbeat revenue forecast calmed worries over faster returns from its hefty spending on artificial intelligence infrastructure.
The company has poured billions of dollars toward building data centers for partners like OpenAI and Meta, while trimming staff and using smaller, AI-assisted teams and tools to develop software for its traditional customer base and businesses.
Oracle raised
its revenue forecast for fiscal 2027 to $90 billion, above analysts' estimates of $86.6 billion.
Remaining performance obligations (RPO), a key indicator of future contracted revenue, jumped 325% from a year earlier to $553 billion in the third quarter, compared with $523 billion in the prior quarter and beating market estimates.
Oracle looks "like one of the more direct ways for investors to tap into the ongoing buildout of AI infrastructure. It's a higher-risk, higher-reward stock, and effectively a leveraged play on the AI theme, which means it's the first in line to take some punishment should the AI story lose steam," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
For its current fiscal fourth quarter, the company projected adjusted profit between $1.96 and $2.00, above analysts' estimates of $1.94.
SAAS RISK DEBATE CONTINUES
On the conference call, co-founder and executive chairman Larry Ellison said rising investor concern that AI coding tools would weaken demand for business software should not apply to Oracle. The company, he said, is embracing those tools by using small teams of engineers to create new software-as-a-service (SaaS) products.
Worries that fast-advancing AI tools could upend software and services had pummeled stocks in the sector last month. The stock is down 23% so far this year.
While these (Ellison) are very credible comments, it remains to be seen if Oracle sees an impact on seats and pricing shifts that could occur, said Melius Research.
"We don't think investors are really concerned about the SaaS-pocalypse for Oracle, as much as the risks associated with execution, margins and financing within Oracle Cloud Infrastructure (OCI)."
Oracle's stock is trading at over 19.17 times its 12-month forward earnings estimates, compared with Microsoft's 22.05.
(Reporting by Akriti Shah in Bengaluru; Editing by Sriraj Kalluvila)
