Investment thesis confirmed
While ORCL shares have advanced somewhat, we remain confident in our long-term investment thesis and are encouraged by a number of important developments.
In July, we highlighted that ORCL was unique among cloud infrastructure providers by virtue of its dominant position in relational databases. We also noted that ORCL was differentiating itself as a strong alternative cloud services provider for enterprises that seek vendor diversification.
In addition to strong financial results, ORCL announced a new partnership with Amazon Web Services that demonstrates both the importance of its strength in databases and the opportunity it has to partner with other leading cloud players. The two companies formally announced a new initiative that “will provide customers with a unified experience between Oracle Cloud Infrastructure (OCI) and AWS, offering simplified database administration, billing, and unified customer support.”
ORCL now has cloud database partnerships with Microsoft (MSFT), Alphabet (GOOG) and Amazon (AMZN), which the company expects “will turbocharge the growth of our database business for years to come.”
Investing intelligently in AI
With 162 cloud data centers live or under construction, ORCL continues with its ambitious plans to build one of the “most powerful artificial neural networks in the world.”
ORCL is investing heavily in data centers but prudently within the context of robust free cash flow generation.
Capital expenditures for the first quarter were $2.3 billion, a pace that is expected to be roughly double last year’s. Yet ORCL reported free cash flow generation of more than $11 billion on a trailing 12 month basis, repurchased approximately $150 million of stock during the quarter, and has paid out some $4.4 billion of dividends over the past year.
We took note of one particularly interesting disclosure which demonstrates the critical role of energy generation as AI infrastructure is built out. ORCL has recently received permitting approval to build a large data center that will be powered by three small modular nuclear reactors. The age of nuclear data centers has arrived.
On the earnings call, ORCL founder Larry Ellison also provided useful color about applications that Oracle database technology, infused with generative AI capabilities, will offer within the heath care sector.
