While pulling back in more recent trading days, Oracle (NASDAQ:ORCL) has so far stayed in the green during 2023. A major announcement shows that Oracle stock offers exposure to AI growth.
However, this announcement is just the tip of the iceberg. Oracle is investing billions in other ventures to take advantage of this lucrative growth trend. That’s not all. The software company is seeking growth opportunities beyond AI.
With all of this in mind, now may be the time to give ORCL, one of the largest tech stocks that’s not a “Mag 7″ component, some serious consideration.
Oracle Stock, the Palantir Deal, and Other AI News
As you may have guessed, the “major development” in AI I reference above is Oracle’s plans to partner up with Palantir Technologies (NYSE:PLTR).
In a recent PLTR article, we broke down the potential upside from this partnership, from the perspective of the AI software rising star.
However, it’s not as if all the benefits from this arrangement will accrue to Palantir, leaving little that could boost Oracle stock. This established, mature software giant also stands to gain big from this deal.
Just like how the availability of Palantir’s software platforms via Oracle Cloud Infrastructure could boost demand for these platforms, the inverse may also be true.
The booming demand for Palantir’s world-class AI software offerings could bode well for Oracle’s Cloud Infrastructure segment. In general, the gen AI trend has been a boon for this business unit.
During the quarter ending Feb. 29, 2024, Cloud Infrastructure revenues increased 49% year-over-year. However, going forward, the Palantir partnership could help sustain such high levels of growth.
Other Growth Catalysts on Tap
AI may be one of the fastest growing areas of tech right now, but as mentioned above, this isn’t the only high-growth vertical this company is targeting right now. Another major area of interest for Oracle right now is in the health care software space.
For years, Oracle has been building up its health care business. Namely, through its 2022 acquisition of health care IT colossus Cerner.
With plans to move its corporate headquarters to Nashville, Tennessee, a major health care industry hub, Oracle may be mulling further expansion in this area.
As Oppenheimer’s analyst team recently argued, in a recent research note on Oracle stock, other secular growth trends on tap include digital transformation and data management.
In short, Oracle has a lot going for it right. Even so, it’s not as if the market has taken notice. At least, based on the stock’s current price-to-earnings ratio.
Currently, ORCL trades for around 20.6 times forward earnings. That’s below of even some of the less-pricey “Mag 7″ stocks.
Not only that, this comes despite forecasts calling for steady double-digit earnings growth. Put simply, this suggests strong potential for an eventual rerating to the upside.
Bottom Line: Consider it a Buy, but Be Patient
Over the next few years, not only could Oracle’s earnings keep growing at a more than 10% clip. Growth could accelerate starting in the fiscal year ending May 2026.
By then, today’s macro headwinds could be distant memory. A further AI boom may be in full swing, and the company’s cloud computing businesses could be crushing it to an even greater extent. Other growth trends may also provide a boost.
If this plays out, shares could both rise in line with earnings growth and because of multiple expansion.
If FY2026 earnings hit forecasts ($7.23 per share), and ORCL rerates to a forward multiple of 25-30, $200 per share is within reach for the $116 per share stock.
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Bottom line: while it may take time to play out, if you’re a patient investor, feel free to buy Oracle stock.
Oracle stock earns a B rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place