Oracle shares pop on strong demand, Q4 earnings beat

Key Concepts

• AI Infrastructure
• Cloud Services
• Backlog Growth
• Remaining Performance Obligation (RPO)
• EBITDA
• Re-accelerating Growth
• AI Roadkill
• Market Sentiment

Oracle's Earnings and AI Strategy

• Earnings Beat: Oracle reported an earnings beat, leading to a stock price increase in after-hours trading.
• Fiscal 2026 Revenue Expectations: The company expects fiscal 2026 revenue to be "dramatically higher" due to AI and cloud services. Safra Catz projects total cloud growth (applications plus infrastructure) to increase from 24% to over 40% in fiscal 2026.
• AI Beneficiary: Oracle is positioned as an AI beneficiary, competing with giants like Microsoft, Amazon, and Google.
• Unique Strategy: Oracle's AI strategy is described as "very different and unique."
• Backlog Growth: The most important highlight is the expected 100% backlog growth in the next fiscal year, significantly higher than the previous 41%. This indicates substantial AI contracts coming to Oracle.
• Stargate Project: The discussion mentions "Stargate" in Abilene, Texas, implying that the expected growth includes revenue from this project and other major AI companies.
• Market Share: While Oracle's current market share in AI is lower than Amazon and Microsoft, this allows for faster growth potential.
• AI Trade: The backlog commentary suggests that the AI trade is "alive and kicking" with no constraints or concerns about the economy.

Adobe's Challenges and Opportunities

• Market Sentiment: Adobe faces the "worst sentiment of all large cap software" despite users loving the product.
• Wall Street Concerns: Wall Street is concerned about Adobe's ability to monetize Firefly and the potential impact of new AI models.
• AI Roadkill Narrative: There's a prevailing narrative that Adobe will become "AI roadkill," but the analyst's research suggests this is not true.
• Valuation: Adobe is considered the "cheapest name in large cap" at 15 times EBITDA.
• Growth and Margins: Adobe needs to maintain double-digit growth and mid-40% margins to change the negative sentiment.
• Management Confidence: The analyst expresses strong confidence in Adobe's management team and their strategies.
• Embedded Expectations: The market has very low expectations for Adobe, assuming AI will negatively impact the company.
• Actionable Insight: Holding to their script should be enough because the embedded expectations for Adobe are massive.

Remaining Performance Obligation (RPO) and Defensive Growth

• RPO Growth: Oracle expects RPO to grow 100% in fiscal 2026, even amidst market uncertainty.
• Defensive Play: This growth makes Oracle a more defensive investment option.
• Re-accelerating Growth: Oracle is seen as a re-accelerating growth story, which is favored by Wall Street.
• Margins: Oracle has margins of 40%+, which are well above the majority of their peer group.
• AI Investment: While AI investments may contract margins, they will remain high.
• AI Adoption: CEOs and CIOs are not turning away from AI investments.
• JP Morgan's AI Spending: Jamie Dimon, CEO of JP Morgan, announced a $2 billion AI investment this year, with potential to double or triple in the next year.
• Oracle's Role: Oracle is expected to be a foundational piece in the AI landscape.

Synthesis/Conclusion

Oracle is experiencing a resurgence driven by AI and cloud services, with significant backlog growth indicating strong future performance. While Adobe faces market skepticism and concerns about AI disruption, its low valuation and strong management team present a potential opportunity if the company can maintain growth and margins. The overall trend of increasing AI investment, exemplified by JP Morgan's plans, suggests a positive outlook for companies like Oracle that are positioned to benefit from this technological shift.