AI boost propels Oracle’s cloud infrastructure business to new heights

Oracle shares surged almost 9% on Wednesday thanks to increased demand for its cost-effective cloud infrastructure services for artificial intelligence applications. This growth could result in a $28 billion increase in the company’s market valuation, currently at $340 billion from the previous market close on Tuesday. So far this year, Oracle’s shares have increased by 18%.

Oracle has been heavily investing in its cloud infrastructure unit, which is anticipated to drive growth by leasing cloud computing and storage to businesses. However, the company will face tough competition from tech giants like Google, Microsoft, and Amazon. Oracle’s cloud infrastructure is marketed as a less expensive alternative to its competitors, attracting business from AI startups that are funded by venture capital, such as xAI, led by Elon Musk.

Recently, Oracle announced a partnership with OpenAI and Google Cloud to expand its cloud infrastructure. This move was seen positively by analysts and investors, enhancing Oracle’s reputation as an AI platform. The collaboration with OpenAI allows the company to use Microsoft’s Azure platform on Oracle’s infrastructure, with new language learning models being trained on a supercomputer built with Microsoft technology.

Despite the positive news, Oracle’s stock trades at a lower multiple of its forward earnings estimates compared to Amazon, Microsoft, and Alphabet. The company’s fourth-quarter results missed expectations as its traditional database and enterprise resource planning software face competition from more affordable alternatives. Analysts believe that Oracle software might be losing customers to rival companies due to diminishing switching costs in the digital transformation era.