The American economy has a rich history of producing the world’s most valuable companies. In 1901, American steel became the first company in the world to amass a $1 billion valuation. The 123 years since have been filled with more incredible milestones, including Apple becoming the first company to be valued at $1 trillion in 2018.
Apple is now alongside Microsoft And Nvidia in the $3 trillion club. Amazon, AlphabetAnd Metaplatforms have also become billion-dollar giants since Apple paved the way in 2018. But I think another company is on its way to joining them by the end of this decade. Oracle (NYSE:ORCL) is experiencing red-hot demand for its artificial intelligence (AI) data center infrastructure, and its stock price just soared to a new all-time high.
Oracle is a $383 billion company at the time of writing, so if it joins the $1 trillion club in 2030, investors who buy the stock today could reap a hefty 161% gain. Here’s why I think it will happen.
Oracle has built some of the world’s best AI infrastructure
Founded in 1977, Oracle is a pioneer in the technology sector. It originally developed some of the world’s best database management software before helping its enterprise customers prepare for the Internet age in the late 1990s and early 2000s. It then moved into the cloud computing industry to provide the data center infrastructure and digital applications that businesses need to thrive in the modern economy.
Oracle Cloud Infrastructure (OCI) is a favorite destination for AI developers. The data centers are filled with advanced graphics processing chips (GPUs) from top vendors such as Nvidia, specifically designed to develop AI models.
While that may seem similar to what many other data center operators offer, Oracle has developed a unique RDMA (random direct memory access) technology that allows data to move from one point to another significantly faster than competing Ethernet networks. In practice, this means that developers can train their AI models much faster, and since they often pay for computing capacity on a per-minute basis, this translates into significant cost savings.
Additionally, unlike other data centers, Oracle’s Gen2 Cloud infrastructure is automated, allowing the company to quickly bring new locations online without having to hire and train employees. This reduces costs but eliminates human error, meaning the Gen2 architecture is more secure. Data is the nectar of any AI model, so protecting it is crucial for any developer.
Oracle’s low-cost, high-performance data centers are now used by leading AI startups such as Cohere, Elon Musk’s xAI and, thanks to a recently signed deal, ChatGPT maker OpenAI. Oracle’s infrastructure is also used by other technology giants, such as Microsoft, Alphabet and even Nvidia.
Oracle can’t keep up with demand
Oracle is building data centers as quickly as possible, but is struggling to meet demand. During the fourth quarter of fiscal 2024 (ended May 31), the company generated total revenue of $14.3 billion, representing a year-over-year increase of just 3%. But there’s more to it than the slow headline number.
First of all, the OCI segment specifically generated $2 billion in revenue, an impressive 42% increase over the prior year period, making it the fastest growing part of the entire organization.
Second, Oracle had a record $98 billion in remaining performance obligations (RPOs) at the end of the quarter, which essentially represents its backlog. That was up 44% year over year and included $12.5 billion in new AI deals from 30 customers. Simply put, there’s a line of AI companies waiting for new Oracle data centers to come online, and it’s growing longer every quarter.
Management says about 39% ($38.2 billion) of those RPOs will convert to revenue over the next twelve months, indicating how quickly Oracle is building more infrastructure. If that figure holds true, the company says it should return to double-digit percentage revenue growth through the current fiscal year 2025.
But it gets even better: CEO Safra Catz says there are many more deals in the pipeline, meaning RPOs can continue to grow even faster than Oracle can fill them.
Oracle’s (mathematical) path to the $1 trillion club by 2030
Oracle earned $5.56 in non-GAAP (generally accepted accounting principles) earnings per share in fiscal 2024. So based on the current share price, it is trading at a price-to-earnings (P/E) ratio of 25. That’s a discount. to the price-earnings ratio of 30.9 Nasdaq-100 index, which implies that Oracle is (on average) much cheaper than its major technology peers.
If Oracle’s price-to-earnings ratio increased 23.6% from here and was in line with the Nasdaq-100’s price-to-earnings ratio, that would bring the company’s market cap to $473 billion. For market cap to reach $1 trillion by the end of this decade, Oracle’s earnings per share would need to grow 11.3% annually to reach $11.76 by calendar year 2030 (assuming the price-to-earnings ratio remains constant).
Oracle’s earnings growth lagged behind fiscal 2024 at just 8.6%. But remember, this was partly due to the company’s inability to meet demand for its data centers. If supply declines in fiscal 2025 and revenues rise, as Catz expects, Oracle’s revenues should follow suit. Additionally, the high level of automation in Oracle’s data centers should increase the company’s gross profit margins over time, which could further accelerate earnings growth.
Wall Street’s early forecast for fiscal 2025 points to earnings growth of 11.3%, which will put the company on track. But even if Oracle doesn’t achieve a $1 trillion market cap in the next seven years, the incredible demand for its AI infrastructure should catapult the company into the trillion-dollar club in the longer term.
Should You Invest $1,000 in Oracle Now?
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
1 unstoppable stock that could join Nvidia, Microsoft, Apple, Amazon, Alphabet and Meta in the $1 trillion club by 2030 was originally published by The Motley Fool
