Founded back in 1977, Oracle (NYSE:ORCL) has built itself into a diversified enterprise software business. The Oracle stock boasts a $318 billion market cap, and the software firm’s extensions into cloud infrastructure could create tailwinds that could send its valuation even higher in the long term.
Below are three reasons Oracle stock could be a significant moneymaker for long-term equities investors.
A Closer Look at Oracle Stock
Oracle operates a significant cloud and software applications business. In the software firm’s fiscal 2023, “Cloud services and license support” composed more than 82% of Oracle’s $49.9 billion revenue figure.
This business segment offers customers a suite of robust applications and infrastructure services to help drive growth and efficiencies in its customers’ businesses.
The aforementioned line of business grew by 12% in Oracle’s most recent Q3’2024 earnings print.
Management cited “large new infrastructure contracts signed in Q3″ drove Oracle’s Remaining Performance Obligations line item, a measure of business growth, up 29% to above $80 billion.
Cloud and the infrastructure supporting it will probably be a driver of Oracle’s overall sales growth for the foreseeable future. Not every enterprise uses cloud technology, but many are increasingly investing into the space.
Oracle’s investment in AI cloud infrastructure will also create long-term tailwinds for its infrastructure business as artificial intelligence increases in utility and ubiquity.
Supply Chain Solutions Tailwinds
Outside of cloud computing, Oracle also offers a variety of software applications that enterprises can leverage to better manage their business. The “Oracle Fusion” platform’s software and services help to do just that.
In particular, the company provides a variety of resource management and supply chain software applications to aid in driving efficiencies throughout a business.
I have written several times in the past that supply chain software has become invaluable to businesses across sectors and geographies.
Most notably, the COVID-19 pandemic put supply chains under pressure and many companies decide to invest capital in digitizing their supply chain.
There are still a number of industries, including retail and certain industrial sectors that require digital transformation in this regard, and Oracle’s supply chain management solutions would certainly fit the bill here.
Valuation Looks Great
U.S. equities have hit some choppy waters at the end of April. The S&P500 and Nasdaq Composite fell 4.16% and 4.41%, respectively, in just one month. The reasons for this are two-fold.
On the one hand, U.S. trading multiples have risen to extraordinary highs compared to other equities markets. This means U.S. stocks have risen so high that they have become “expensive.”
On the other hand, macroeconomic volatility in the form of persistent inflation continues to extend the U.S. Federal Reserve’s cycle of elevated interest rates.
Fortunately, Oracle is trading at a relatively cheap multiple for public software businesses. The company’s shares trade at around 19.2x forward earnings.
If look at cloud infrastructure giants like Microsoft, Amazon, and Google, Oracle’s trading valuation is cheaper. Also, to compare with a more direct competitor, SAP (NYSE:SAP) trades at 33.3x forward earnings.
For investors looking to make a long-term investment, the growth undergirding Oracle’s core businesses and the company’s cheap valuation spell opportunity.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
