Every Oracle Stock Investor Should Watch This Key Number In December

Oracle (ORCL 0.82%) was founded in 1977 and has participated in almost every technological revolution since then. The company first became known for its database management software, but later helped its business customers prepare for the dawn of the Internet, cloud computing and now artificial intelligence (AI).

Oracle leverages some of the best data center infrastructure in the industry for AI development, and demand far outstrips supply. The company will report its financial results for its first quarter of fiscal 2025 (which ended November 30) in early December, and there’s one number every investor should watch.

A leader in AI data center infrastructure

To make chatbots and AI software applications “smarter,” they need to operate on larger language models (LLMs). Industry-leading LLMs, like those developed by OpenAI and Anthropic, now have trillions of parameters, making them highly proficient on a variety of topics. Training these LLMs requires a lot of computing power, as does deploying them for customers to use, which is called the inference stage of AI.

Training and inference take place in data centers, which are filled with graphics processing units (GPUs) from vendors such as Nvidia. Tech giants like Oracle build, manage, and rent this infrastructure to developers for a fee, typically billed by the minute. Therefore, these developers will flock to data center providers with the fastest data centers, as this generally means lower costs.

Oracle Cloud Infrastructure (OCI) superclusters allow developers to scale up to 65,536 Nvidia GPUs (and soon, more than 131,000 of the latest Blackwell GPUs), more than any other data center provider. Additionally, the company’s direct memory access (RDMA) networking technology moves data from one point to another much faster than traditional Ethernet networks, helping to reduce costs.

Automation is another key factor. Regardless of its size, every Oracle data center is identical in terms of functionality. This means the company can operate them all using software, without requiring human staff. This obviously helps keep costs down, but it also allows Oracle to build and launch new data centers extremely quickly.

Oracle is widely recognized as one of the most profitable data center operators in the industry, which is why it attracts top AI startups like OpenAI, Cohere, and Elon Musk’s xAI. In fact, the company can’t keep up with demand: It had 162 data centers in operation or under construction in the first quarter of its 2025 fiscal year, but it plans to eventually have between 1,000 and 2,000.

The key figure every investor should watch

Revenue generated by Oracle from leasing its data centers is reported in its OCI segment. This part of its business generated a record $2.2 billion in revenue during the first quarter of fiscal 2025, an increase of 45% from the year-ago period.

This growth rate has accelerated from the previous quarter and the company has often stated that OCI revenue could consistently grow by at least 50%.

As I mentioned earlier, Oracle cannot keep up with the demand for its data centers. It’s building new ones as quickly as possible, but lack of supply is the main reason OCI’s revenue hasn’t grown 50% or more in recent quarters.

This is reflected in the company’s remaining performance obligations (RPOs), which are a bit like an order book. RPOs reached a record $99 billion in the first quarter, a whopping 53% increase from last year. Oracle said it signed 42 new contracts for GPU compute capacity in the first quarter alone, worth $3 billion.

OCI revenue (and its growth rate) is the key number investors should watch when Oracle reports its latest results this month.

Oracle has a bright future in AI, but its stock isn’t cheap

Oracle stock is up 72% in 2024 so far and is trading near an all-time high. Based on its trailing 12-month earnings per share of $3.88 and its stock price of $181.41 at the time of writing, it trades at a high price-to-earnings ratio (P/E ) of approximately 47.

This represents a 48% premium over the Nasdaq-100 index, which trades at a P/E of around 32, implying that Oracle stock is quite expensive relative to its big tech peers.

Therefore, investors with a time horizon of one year or less should probably avoid purchasing this stock. However, the situation looks a little different for investors who are willing to hold onto stocks for the next five years or more.

The automated nature of Oracle’s data centers should increase its gross profit margin on a large scale. Therefore, if the company expands its data center footprint 10x, as I mentioned earlier, its earnings growth could accelerate over the next few years.

This alone could lead to exceptional long-term returns for investors, even if they pay a premium for the stock today. However, this scenario depends on the continued strength of the OCI segment. So it’s important to monitor Oracle’s results not only in December, but also in each quarter going forward.