Oracle Dips But The Trend Is Strong

Key Points

• Shares are up 50% since October and looking strong. 
• Yesterday’s dip was the biggest in weeks.
• There are a ton of reasons to think this will soon be more than reversed. 

Shares of tech giant Oracle Corporation NYSE: ORCL have been on a bit of a stormer since the middle of March, tacking on as much as 17%. For context, this was about double what the tech-heavy NASDAQ index managed to gain over the same time frame. 

But there was definitely a bit of coolness in the shares during yesterday’s session as they both gapped down at the open and kept selling into the close. It’s far from panic stations for any Oracle bulls who have been enjoying the ride back towards all-time highs, but still, it was the stock’s biggest red day in weeks. However, as shares exchange hands for around $94 a share, we here at Marketbeat remain bullish on Oracle stock. We see a far easier path for it to hit triple digits in the next few weeks than to dip back below $90, so let’s go ahead and jump into just why that is. 

Bullish Outlook

Well for starters, Oracle, one of the world's largest software companies, has been making strategic moves to bolster its position in the highly competitive cloud computing market. Recently, the company has introduced several artificial intelligence (AI) innovations that could give it an edge over rivals such as Amazon Web Services (AWS), Google Cloud Platform, and Microsoft Azure. These innovations include a partnership with NVIDIA Corporation NASDAQ: NVDA, a leading manufacturer of graphics processing units, to host the DGX Cloud on its Oracle Cloud Infrastructure platform.

It was with this in mind that the team over at Monness Crespi Hardt reiterated their Buy rating on Oracle shares last week. Analyst Brian White and his team are fans of its cloud-related initiatives and believe the company is "well positioned" to capitalize on growing demand. 

According to White, the recent introduction of AI innovations is a positive development for the IT giant. Specifically, he cited Nvidia's launch of its DGX Cloud and noted how he was particularly impressed by Oracle's decision to be the first to support this. Not to get too technical, but the reason behind this is it offers a remote direct memory access network with bare-metal compute high-performance local and block storage and the ability to accommodate over 32,000 GPUs. Becoming one of the leaders in this space is the result of years worth of work and positioning and is likely to be a key business-winning differentiator for some time yet. 

To be sure, Oracle still has work to do in order to catch up with Amazon, Microsoft and Google, who all outperform it in the cloud computing market, but this shouldn’t stop investors from getting excited about its stock. In fact, it was only two weeks ago that the team at Guggenheim was effectively calling this 4th place position a competitive advantage. Some of analyst John DiFucci’s key takeaways from meeting senior leadership was that Oracle could deliver cloud services at "significantly" less than its competitors but twice their performance.

It’s a bullish stance that investors have had no trouble buying into over the past six months. Though it was a dark multi-year low they hit last October, Oracle’s shares have found their groove since and, including the recent rally from March, are up more than 50%. 

Getting Involved

Risks and question marks do remain of course, mostly around their revenue growth which was shown to have slowed markedly in last month’s earnings report. However, while the numbers came in a little soft, management was still bullish enough to increase the company’s dividend by 25%. This is one of the most bullish signals a company’s leadership can give to the market and suggests that the recent earnings miss will be little more than a bump on what’s otherwise a smooth road up. 

Shares were already being bid higher in Tuesday’s morning session, so let’s see how quickly they can undo Monday’s dip and get to the high $90s. Once there, it’s pretty easy to see them trading for triple-digit numbers once again.