UBS is upbeat about Oracle's strong relationship with Nvidia, the leading provider of graphics processing units used in artificial intelligence.
Oracle shares jumped 3% Tuesday after UBS analyst Karl Keirstead raised his rating on the stock to Buy from Neutral, citing the potential for the company’s cloud business generally and its opportunity in artificial intelligence in particular.
Keirstead lifted his target price for Oracle to $140 from $120. Shortly after midday on Tuesday, the stock was trading at $120.37. “We are increasingly confident that Oracle has carved out an under-appreciated edge” in terms of graphics processing capacity, “enough to attract new customers and drive [Oracle Cloud] usage,” Keirstead wrote in a research note.
While the stock had rallied 42% so far this year through Monday, the analyst said constraints on the supply of graphics processors from Nvidia “could be enough to drive outsized performance in Oracle shares.” Oracle “is benefiting from outsized allocations of Nvidia GPUs relative to its size.” he said, arguing that Oracle could have what he called “a GPU speed-to-deployment edge.”
Keirstead noted that Oracle has said it expects about 50% growth in its cloud business in its fiscal year ending in May 2024, but said he thinks that call is conservative. He raised his own estimate for growth in the cloud segment to 59% from 52%. Oracle’s software-as-a-service business looks stable, he said, while its database business “could get a lift from a pick-up in cloud migration activity and/or prove to be a quiet AI beneficiary.”Write to Eric J. Savitz at eric.savitz@barrons.
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