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Oracle (NYSE: ORCL) reported solid results in its first fiscal quarter. On a constant currency basis (without foreign currency effects), its cloud infrastructure revenue increased 58% year over year, and cloud application revenue jumped 48%.

In addition to the impressive cloud business growth, Oracle’s founder and chairman, Larry Ellison, delivered some shocking news. Here’s what it could mean for investors.

Its cloud business may be better than investors realize

Oracle has long been a leader in enterprise resource planning (ERP) software, which handles complex functions like accounting, project management, compliance, and supply chain operations for big companies. Oracle was a latecomer to the cloud transition, but its grip on the ERP market remains firm.

While first-comer cloud providers offer competing software and cloud infrastructure, Oracle has a decades-long head start in software. It is the only cloud player to provide infrastructure and a complete ERP software application package.Digitally rendered laptops displaying world maps, all connected to a central cloud icon.

Image sources: Getty Images.

Combining the two has created some phenomenal opportunities for Oracle. For instance, the company’s MySQL HeatWave offering combines cloud services that can perform customer transactions and provide an analytics database for the associated data. Those two services were previously only available on separate cloud services, which made data migration between separate clouds time-consuming. With MySQL, customers can analyze transactional data in real time.

MySQL HeatWave’s performance is seven times better than Amazon‘s (NASDAQ: AMZN), and 10 times better than Snowflake‘s (NYSE: SNOW) — at half the cost. The service is so compelling that Amazon made it available to its own Amazon Web Services (AWS) customers.

Perhaps more alluring to investors is that Oracle’s cost structure is mainly fixed. That means adding a new customer costs Oracle very little, and each additional dollar of revenue earns more profit than the last. Some customers start with a few software applications and add on over time as they see the value of Oracle’s offerings.

The cost structure also allows Oracle to offer big enterprise customers a discount for bundling services together, winning huge customers based on price and functionality. Adding big new customers is why Ellison is so excited.

A shocking announcement from Ellison

In a question-and-answer session during Oracle’s last quarterly earnings webcast, Ellison noted that Oracle can save cloud users money and offer a better product than Amazon’s AWS. He added: “We expect next quarter, we’ll be announcing some brands and companies moving off of Amazon to OCI (Oracle Cloud Infrastructure) that will shock you.”

He later reiterated: “So again, I’m going to repeat, we’re talking to the most famous brands that are running at Amazon, and some of them are going to be moving very soon.”

When Oracle’s founder and chairman issues a prophetic shot across the bow, investors should sit up and take notice because he might be right. Amazon’s AWS segment, which controls a third of the global cloud infrastructure market, recorded an impressive 33% revenue growth last quarter — but it fell short of Oracle’s revenue growth of 58% in cloud infrastructure and 48% in cloud application.

Is Oracle a buy right now?

The cloud computing market is expected to grow by almost 18% per year through 2028; if Oracle is as competitive as it seems, it should be able to capture an above-average chunk of that growth. Beyond Oracle’s incredible growth prospects, its stock offers an attractive valuation:

ORCL PE Ratio (Forward) Chart

ORCL PE Ratio (Forward) data by YCharts.

No one must be taking Ellison seriously, because Oracle’s stock has fallen since the earnings report and now trades at about $69 per share. Wall Street expects Oracle to earn $5.01 per share in its fiscal year ending May 31, 2023, which implies a forward price-to-earnings (based on projected earnings per share) ratio of 13.8 — nearly its lowest in over a year. Compare Oracle’s valuation to the current multiple of 23 for the iShares S&P 500 Growth ETF (NYSEMKT: IVW), and you’ve got a stock worth adding to your portfolio.

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