Oracle (ORCL) is a juggernaut in the technology space. Through its cloud computing and enterprise management software, the company is integral in the data management and operations of its clients.

While Oracle is now a leader in cloud computing, this wasn’t always the case for the company. While Amazon, Microsoft, and Alphabet all invested in cloud computing in the early 2000s, Oracle resisted, instead focusing on its traditional software licensing business.

When Oracle began ramping up its data center build out in 2020, it was able to tailor its new facilities for AI. As a result, the company has established itself as a premier computing provider. 

Recently, the company’s stock soared 36% in a single day on Wednesday and added more than $200 billion to its market cap as it saw its RPO grow 359% year over year, to $455 billion.with the company winning several multi-billion contracts for AI-related services. 

This said, as Oracle’s stock continues to climb, it is important for investors to recognize the implication of its ascent. As Oracle’s stock rises, so too will the market’s expectations for future performance.

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Oracle (ORCL) is a juggernaut in the technology space. Through its cloud computing and enterprise management software, the company is integral in the data management and operations of its clients.

The Oracle Cloud Infrastructure (“OCI”) delivers computing power, storage, and networking capabilities, making it the premier enabler of the most advanced AI models today.

While Oracle is now a leader in cloud computing, this wasn’t always the case for the company. While Amazon, Microsoft, and Alphabet all invested in cloud computing in the early 2000s, Oracle resisted, instead focusing on its traditional software licensing business.

It wouldn’t be until 2016 that the company launched OCI, at which point Oracle was well behind the other market leaders. However, missing out on the initial wave of cloud computing may have laid the foundation for the company to capitalize on the current wave of AI investing.

When Oracle began ramping up its data center build out in 2020, it was able to tailor its new facilities for AI. As a result, the company has established itself as a premier computing provider. And since Oracle isn’t developing AI models itself, it has been able to partner with Microsoft, Amazon, and Alphabet, running their models on its servers.

Oracle also hosts Nvidia’s AI infrastructure on its cloud, a testament to the company’s importance to the key drivers of the AI revolution.

This is a fact that became abundantly clear to investors earlier this week when the company released its first-quarter earnings.

Oracle’s performance on the surface was unremarkable. Revenue grew 12% year over year and earnings per share came in at $1.47. Both of these metrics fell short of consensus estimates.

Nevertheless, the company’s remaining performance obligations (“RPO”), essentially backlog, “went nuclear” as one Jefferies analyst put it.

RPO grew 359% year over year, to $455 billion, with Oracle winning several multi-billion contracts for AI-related services. The largest of these deals comes from OpenAI, who will pay Oracle $300 billion over five years in exchange for 4.5 gigawatts of computing power.

Investors were elated upon hearing the news, causing the company’s stock to soar 36% in a single day on Wednesday and adding more than $200 billion to its market cap and making it the 10th largest company in the S&P 500.

This said, as Oracle’s stock continues to climb, it is important for investors to recognize the implication of its ascent.

As Oracle’s stock rises, so too will the market’s expectations for future performance.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Following Oracle’s stock performance this week, investors now expect the company’s Uniform earnings to rise from $19 billion in 2025 to $47 billion by 2030. This would be the largest five-year percent gain for the company’s earnings in the 21st century.