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Database software giant oracle (ORCL) is set to report earnings late Tuesday, in an environment that hasn’t been favorable for software stocks. But Oracle stock is off to a strong start this year as analysts grow increasingly confident that the 46-year-old company can capitalize on AI demand to boost its cloud computing business.




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Here’s what you should know before Oracle’s report. (Watch Investor’s Business Daily’s live coverage beginning at 3 p.m. ET.):

In numbers

For the quarter ending in May, analysts forecast Oracle’s adjusted earnings to be $1.65 per share, down 1 percent from the previous year. Revenue is expected to rise 5.5 percent to $14.6 billion, according to FactSet.

The quarter marks the end of Oracle’s fiscal year 2024.

Following its last earnings report in March, Oracle forecast revenue growth of about 5% for the fourth fiscal quarter.

Oracle shares: Focus on forecast for the fiscal year

Investors will be paying close attention to Oracle’s forecasts. CEO Safra Catz typically provides analysts with updates on the company’s outlook during conference calls about Oracle’s quarterly earnings.

“For us, Oracle remains an interesting large-cap story in software as the company is one of the few vendors with a modern computing platform that will benefit from capacity increases and is likely to benefit from further AI adoption,” Barclays analyst Raimo Lenschow wrote in a client note on Monday. “Little of this will be visible in the fourth quarter, meaning the stock price reaction is likely to depend more on guidance (for fiscal 2025) than on published results.”

Barclays maintains a positive overweight rating on Oracle stock. On average, analysts expect Oracle’s revenue to rise 8.5% to $57.8 billion in its next fiscal year, which ends in May 2025. But Lenschow noted that Oracle may need a higher number to reach its longer-term forecast of $65 billion in annual revenue in fiscal 2026. Catz reiterated that long-term goal in a conference call with analysts in March.

Oracle shares: Cloud infrastructure in focus

Oracle is currently undergoing a long and sometimes bumpy transition from an on-premises software provider to a subscription-based cloud company.

A central part of this effort is Oracle’s Cloud Infrastructure business. OCI provides cloud-based servers, storage and other computing services to other companies.

Oracle wants to gain ground on the market leaders in this category Amazon (AMZN) and Microsoft (MSFT).

The deal is also crucial to Oracle’s strategy to capitalize on the growth of artificial intelligence. The company is buying chips from NVIDIA (NVDA) with the aim of leasing capacity to other companies that need the enormous computing power required for AI algorithms.

For the quarter ended February, Oracle said its cloud infrastructure revenue rose 49% year-over-year to $1.9 billion. Revenue rose 52% year-over-year in the November quarter, 66% in the August quarter, and 76% in the May 2023 quarter.

Guggenheim analyst John DiFucci wrote on Monday that he believes Oracle can meet expectations that cloud infrastructure revenue will grow at least 50% year over year in the May quarter. Guggenheim recommends Oracle stock as a buy.

At the end of February, Oracle still had over $80 billion in performance obligations related to AI-related cloud demand. Investors are debating how quickly Oracle can expand data center capacity to meet demand.

“We believe many investors remain skeptical about Oracle’s ability to deliver in the OCI space. In our view, the question is when they will see the enormous backlog of orders, not if,” DiFucci wrote to his clients.

Collapse of software stocks

Oracle’s earnings come at a difficult time for software stocks. A list of companies, including Foreclosure (CRM), working day (WDAY) and database competitor MongoDB (MDB) suffered sharp declines late last month following disappointing earnings reports.

Oracle fell in line with these stocks in the last week of May. But the stock recovered and recorded a gain of 7.5 percent in the week ending June 7. In this morning’s trading on the stock exchange, Oracle shares lost less than 1 percent and traded at 123.75.

Shares have gained 20% overall this year, outperforming the S&P 500’s 12% gain. Oracle shares rose after reporting better-than-expected third-quarter results in March.

Prior to the report’s release, Oracle stock formed a cup pattern with a potential buy point at 132.77, according to MarketSurge. The shares have an IBD Composite Rating of 83 out of a maximum of 99.

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