1 unstoppable stock that could join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta in the $1 trillion club

By | March 15, 2024

Artificial intelligence (AI) launched its first $1 trillion company last year Nvidia Shares soared 239% on incredible demand for its AI data center chips. Nvidia is now worth over $2.2 trillion, making it the third largest company in the world after Microsoft And Apple. Amazon, MetaplatformsAnd Alphabet (Google’s parent company) are also members of the $1 trillion club, and each company is working on AI in its own unique way.

But I think AI could provide a boost soon Oracle (NYSE: ORCL) to a valuation of $1 trillion. It operates an industry-leading AI data center infrastructure and the company is building capacity at record speed because it simply cannot keep up with demand. At the time of writing, Oracle is valued at $350 billion, so investors who buy the stock today will see a gain of about 185% if the company joins the $1 trillion club.

Oracle is a leader in AI infrastructure

Founded in 1977, Oracle is one of America’s oldest technology companies. It developed revolutionary database management software at the time, before helping its enterprise customers prepare for the Internet age in the late 1990s and early 2000s. The company founded Oracle Cloud Infrastructure (OCI) in 2016 and has since provided hundreds of digital services to these companies to migrate their operations online.

Now, using Nvidia’s latest graphics processing units (GPUs), Oracle is focused on delivering the best data center infrastructure for AI workloads. Three months ago, Oracle told investors it was expanding 66 of its existing data center regions and building another 100 to meet demand.

Chairman Larry Ellison says Oracle’s GPU cluster technology allows companies to develop generative AI models at twice the speed and at half the cost of other cloud providers. As a result, demand for the latest Gen2 Cloud capacity is skyrocketing. Oracle can keep costs low because its data centers rely on automation, meaning there is little difference in operating costs between running 10 data centers and running 100. That also allows the company to build and deploy them quickly to scale.

In a conference call with investors for the third quarter of 2024 (ending February 29), CEO Safra Catz said Oracle has at least 40 new AI bookings worth more than $1 billion each that haven’t even come online yet. In other words, they are waiting for additional infrastructure to be built.

Oracle can’t keep up with demand

Oracle generated total revenue of $13.3 billion in the third quarter, up 7% year over year. While that sounds like slow growth, revenue for OCI increased 49% to $1.8 billion, and revenue for Gen2 Cloud specifically (within OCI) grew 53%.

While OCI currently only accounts for 13.5% of Oracle’s total revenue, these growth rates will make it a much larger slice of the pie in the near future.

Oracle’s total AI bookings across its operations reached a record $80 billion in the third quarter, up 29% from the same period a year ago. As you can see, bookings grew four times faster than the company’s revenue this quarter, which is a testament to the enormous demand for computing capacity that the company is struggling to meet.

Ultimately, Oracle’s third-quarter earnings per share rose 25% to $0.85, which also outpaced revenue growth. This was partly due to careful cost management, with operating costs increasing by just 4% year on year. But it was also due to a substantial increase in gross profit margin on the infrastructure side, which is a natural consequence of scale. Oracle expects further improvement as more of its new data centers come online.

People look at a mobile device in front of stacks of supercomputers.People look at a mobile device in front of stacks of supercomputers.

Image source: Getty Images.

How Oracle could become a $1 trillion company

AI is the main focus for Oracle right now, but there’s another opportunity worth mentioning. The company now has two Oracle Alloy data center regions online, which organizations can use to deliver their own cloud services to their customers – without having to manage the infrastructure.

Oracle has five more Alloy data center regions planned, meaning capacity could soon triple. It’s just another example of this company’s long-standing commitment to innovation.

According to Wall Street, Oracle is on track to generate revenues of $53.4 billion in fiscal 2024 (ending May 31), with its share price at a price-to-sales ratio (P/S) of 6.6. That falls between the valuations of other cloud giants, such as Amazon (P/S ratio of 3.1) and Microsoft (P/S ratio of 13.2).

Assuming Oracle’s price-to-earnings ratio remains constant, the company would need to generate $151.5 billion in annual revenue to justify a $1 trillion valuation. If sales grow at 11% annually, this could happen within ten years.

Although Oracle is currently experiencing slower quarter-on-quarter growth, revenue rose 22% last fiscal year. Additionally, Ellison believes OCI revenues will grow by more than 50% in the coming years, which could accelerate the company’s overall revenue as the segment expands.

Remember, Oracle is in the process of more than doubling its data center footprint, and its bookings are up just 29% in one quarter. It is expected that bookings will eventually convert into revenue, implying that revenue growth is likely to accelerate in the near future.

AI is the biggest financial opportunity Oracle has ever pursued, and I believe it’s the company’s ticket to a $1 trillion valuation within the next decade.

Should You Invest $1,000 in Oracle Now?

Consider the following before buying shares in Oracle:

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Suzanne Frey, a director at Alphabet, 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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

1 unstoppable stock that could join Nvidia, Apple, Microsoft, Amazon, Alphabet and Meta in the $1 trillion club was originally published by The Motley Fool

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