"Shares of the database software company have soared more than 80% this year, the seventh-best performance in the S&P 500 Index, as scorching demand for AI computing turbocharges its revenue growth. The latest leg of the rally came after Oracle projected revenue in its cloud-computing business will jump 700% in the next three fiscal years, sending the stock up 36% on Sept. 10."
"But you've got a lot of risk. You're buying the stock now based on hope that we're going to see massive growth in year four, five and six. The long-term nature of Oracle's anticipated expansion, with the heaviest growth coming several years from now, is a major reason why its stock looks so expensive, as analysts haven't adjusted their earnings expectations for the current fiscal year and next."
"The stock is now trading around the highest price-to-estimated earnings since the dot-com era at 43 times, making Oracle more expensive than eight of the nine most valuable companies in the S&P 500. Nvidia Corp., for example, trades at 31 times profits projected over the next 12 months and is expected to have much faster sales growth over that period."
Oracle's shares have surged more than 80% this year as AI-driven demand for computing boosts revenue growth. Oracle projected cloud-computing revenue will jump 700% over the next three fiscal years, fueling a 36% one-day gain on Sept. 10. The company serves as TikTok's primary cloud infrastructure provider amid extended US ban talks. The stock briefly fell 1.9% after two days of gains but now trades around 43 times price-to-estimated earnings, the highest since the dot-com era. That valuation exceeds most top S&P 500 firms and reflects expectations of heavy growth several years out, creating elevated risk.
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