Oracle Corp. (ticker: ORCL) stock jumped 9 percent last month to new all-time highs after the company reported yet another quarter of impressive growth in cloud services revenue. On Tuesday, KeyBanc analyst Monika Garg upgraded Oracle to “overweight” and says the company still has a tremendous growth opportunity ahead for its cloud division.
“We consider 2017 to be the milestone year for Oracle as the cloud business reaches critical mass scaling above a $5.6B annualized run rate, or roughly 13 percent of total sales,” Garg writes.
Still, $5.6 billion may be just the tip of the cloud iceberg for Oracle. Garg believes Oracle can continue its positive cloud momentum and double its annual cloud revenue to $12 billion within the next two years.
By fiscal 2020, KeyBanc projects cloud services will account for 25 percent of Oracle’s total revenue. A big part of that growth will come from Oracle converting its massive existing customer base to its cloud offerings. At this point, only about 5 percent of Oracle’s 400,000 customers use its cloud services. Oracle stock also offers great exposure for investors who want to know how to invest in big data.
Oracle’s massive user base also has the company well-positioned to capitalize on the emerging artificial intelligence market, Garg said.
“Unlike previous innovation cycles, the value of AI will be derived from the scale of data, helping elevate the power of incumbency for those having a large customer installed base and unique data sets,” Garg writes.
Oracle has been investing heavily in its transition to cloud services in recent years, but the investment has already begun making a meaningful impact on the company’s bottom line. KeyBanc projects a heavier mix of cloud revenue could drive Oracle’s operating margins higher by 1 percent annually in the years ahead. Operating margins reached a trough of 42.6 percent in fiscal 2016 amid Oracle’s aggressive cloud investments and merger and acquisition spending spree. However, KeyBanc estimates…
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