It was a big week for Oracle. After a big tech selloff in August, Oracle shares didn’t end the month in the green. Last week was another story all together. The stock has gained 14% over the week, and touched a record high on Friday, as investors responded to strong earnings expectations for fiscal 2026 and beyond. Oracle is now the second most active technology company this year after Nvidia, up 54% this year. “Oracle has been able to create significant AI capabilities that enhance traditional SaaS offerings and make the solution even more powerful,” Barclays analyst Raimo Lenschow wrote in a note to clients Thursday. The firm sees the shares “continuing in an upward direction.” The Oracle merger is a reminder that the recent rally in tech stocks could open up some opportunities in the software sector. Marketers are still waiting for evidence that software companies will benefit from their investments in artificial intelligence. That’s one reason, software tools have driven the broader technology sector this year. Despite Oracle’s fortunes, the S&P 500 Software & Services component is up just 12% year to date, trailing the tech sector’s 26% gain through 2024. Over the past three years, software they have declined as income growth has slowed. and investors are still skeptical about when it will return. Part of the decline is because the cloud revolution is now in its third decade. But at the beginning of 2024, the weak economy made it more difficult to sell software. This high uncertainty has caused small to mid-sized companies to cut back on software spending. In addition, with the emergence of AI, companies have been reallocating funds to prioritize projects in the emerging group. AI can help drive a new cycle of growth. For perspective, the software industry has a 20-year growth rate of 40%, but from 2017 to 2024, growth has been below that mark. Despite the controversy surrounding where the growth of the industry is headed, there are clear signs of strength in Oracle, Microsoft and SAP, analysts say. It is no surprise that outsourcing is the legacy firms that dominate the market share. These software giants have deep market roots and are showing early signs of cashing in on the AI wave. Furthermore, their deep pockets allow them to invest and scale new products, regardless of interest rates or financial strength, further strengthening their market dominance. Oracle “Over the past 20 years the software industry has grown,” said Pat Walravens, head of technology research at Citizens JMP in an interview with CNBC. That means investors are “looking for companies with product cycles that help accelerate growth,” he explained. For Oracle, it’s its cloud infrastructure — a service that has fueled Oracle’s growth story, Walravens argued. “For the first time in twelve years, you’re looking at organic growth returning to double digits,” Walravens said, highlighting one of the takeaways from its quarterly earnings. the first on Monday. This is what has helped Oracle become a strategic cloud service provider in the same category as Amazon, Google, and Microsoft, he explained, while calling Oracle stock a buy, even with recent gains . The investor day that followed the earnings report only served to make Wall Street more optimistic about its growth. Oracle has raised its 2026 revenue target to $66 billion, slightly higher than its previous forecast of $65 billion, but what surprised investors were its bigger targets for 2029. The company has set a revenue target of $104 billion for 2029, suggesting an annual growth rate of 16% from 2026 to 2029, much higher than the 9% expected. Oracle also projected a 20% annual increase in non-GAAP earnings per share through 2029. Bernstein analyst Mark Moerdler, who called the stock his top investment pick, raised his price target to $201 , or 24% above the closing price of $162.03 on Friday. . He told CNBC that Oracle “is growing faster than their peers in that market space.” “They have built very different things,” he said, pointing out that Oracle’s infrastructure and platform tools are powered by AI tails and that this point is not fully bought into the stock by investors. Oracle is resisting the collapse of the software industry by investing heavily in GPU infrastructure – hardware and software that supports the use of graphics processing units in cloud computing. highly sought after by its customers. This strategic move has positioned Oracle as a key player in AI, fueling the growth of its infrastructure as a service (IaaS) business. “What Oracle did well was they saw where the puck was going to be and they slid it to it,” Walravens said. Oracle’s operating system has led to large contracts that include multi-billion dollar deals with companies like OpenAI. This boosted Oracle’s contract value, with bookings reaching $99 billion in the quarter ended Aug. 31 – up 53% from last year, which is an increase on the previous quarter’s 44% year-over-year growth. ORCL YTD mountain ORCL latest performance of the year. Oracle Cloud Infrastructure is at the center of this growth, providing a host of services for AI-powered workloads. Demand for OCI is increasing, with a growing pipeline, which is why the company expects capital expenditures to double by 2025 to support AI-driven cloud computing. Microsoft Microsoft, the world’s largest software maker, stands out for its strategic position and significant investment in AI. Its dominance across all aspects of the cloud — applications, applications, and platforms — positions it as a leader in the AI-driven future of software. Goldman Sachs called Microsoft “one of the strongest investment opportunities in the technology industry,” in a note following its fourth-quarter financial results. The bank highlighted Microsoft’s strong cloud presence, which is increasing its share in customer IT budgets. Microsoft’s competitive edge is most evident in its Azure cloud platform, which integrates AI to help businesses better manage their applications. Azure’s success is driven by AI capabilities embedded in products like M365 Co-Pilot and Azure AI Services, which is attracting more businesses to Microsoft’s cloud. Azure now has 60,000 AI customers, up 60% year-over-year from the fourth quarter. MSFT YTD mountain of MSFT recent performance. Microsoft’s AI revenue continues with Azure AI Services reaching an annual revenue rate of $5 in the second quarter, and contributing 30% of incremental growth. GitHub, Microsoft’s AI-powered development tool, is on pace for $2 billion in revenue, and 40% is powered by Co-Pilot. Goldman Sachs estimates that the cloud business could reach $230 billion by 2027 and should drive a “double earnings per share opportunity” from 2024 to 2028. To keep up with the demand for AI, Microsoft spending billions to expand the data center. infrastructure. Microsoft’s strong cash position and safe balance sheet enable it to maintain spending on cloud and AI resources, without harming its financial performance. CFO Amy Hood said Azure’s growth should accelerate in the second half, “as our capital investments enable an increase in AI capabilities to serve growing demand.” If that happens, the stock, which is up more than 14% year to date should benefit. The largest Wall Street analyst’s price target is Microsoft shares, with an average price target of $498.17, according to FactSet. The target represents a rise of about 16% from Friday’s close. SAP Another company that is resisting the big decline in software is SAP. The German company is capitalizing on the popularity of S/4HANA, the latest iteration of its enterprise resource planning (ERP) software used by companies to help run and manage their day-to-day operations. and the sun. S/4HANA is successful because it is a ready-to-use ERP that incorporates the latest industry best practices and global management information. When SAP reported its second-quarter results on July 22, cloud revenue rose 25% year over year, driven by 33% from its cloud ERP business. That marked the tenth consecutive quarter of growth above 30% for cloud ERP, SAP said. AI plays a key role in driving segmentation benefits. According to executives, nearly 20% of the quarter’s deals included early AI use cases. SAP YTD mount SAP running year to date. Momentum should continue as the cloud backlog is up 28% from last year. With this view, management said it is on track to meet its financial goals for 2025. BMO analyst Keith Bachman expects SAP shares to hit $248 next year. That’s only slightly above Wall Street’s average price of $244.20. Eighty percent of analysts bought SAP shares a buy, according to FactSet. Shares are up 43% year to date. Bachman sees SAP’s high customer retention rate as a benefit and expects the company’s improved cloud capabilities to be a factor in the stock. He also expects that its AI offerings will drive more customers to the cloud because it will increase efficiency. In July, the analyst predicted that its AI would “contribute modestly to revenue,” with a significant impact on the 2025 budget.
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