Oracle stock (ORCL) has gained remarkable momentum, rising 60% over the past year, marking one of its strongest annual performances since the dot-com boom in 2000. Despite this great rally, which may suggest the stock has outperformed itself, I believe the cloud and enterprise software solutions provider is still reasonably valued and has potential for further gains. Notably, Oracle’s revenue and earnings are expected to continue to accelerate in the coming years, driven by rapid growth in its cloud segments. That’s why I’m optimistic about the stock.

Cloud gust is pushing forward strongly Q1 2025 Results

Oracle’s recent Q1 2025 results highlighted the company’s growing momentum, particularly in its cloud divisions, and reinforced my bullish view on the stock. Specifically, Oracle got off to a good start in the 2025 fiscal year with record revenue of $13.3 billion in the first quarter, an increase of 7% year-on-year. While the 7% year-over-year increase may not seem particularly impressive at first glance, the real story lies in the company’s cloud divisions, which saw phenomenal growth.

Oracle’s cloud revenue, which combines IaaS and SaaS, rose 21% to reach $5.6 billion. Cloud infrastructure (IaaS) revenue increased 45%. Additionally, cloud applications (SaaS) revenue increased 10%, driven in part by solid adoption of Fusion Cloud ERP and NetSuite, both of which posted double-digit increases of 16% and 20%, respectively. The strong growth in Oracle’s cloud infrastructure segment was driven by expanded adoption of Oracle Cloud Infrastructure (OCI) and key partnerships. This included a notable multi-cloud agreement with AWS that will see Oracle’s latest database technology integrated into AWS data centers.

I believe these developments are a key differentiator that has helped Oracle capture more cloud workloads. More importantly, Oracle’s growth prospects are looking increasingly bright as cloud services make up a larger share of revenue, eclipsing traditional software licensing sales and hardware businesses. In my view, this ongoing transition away from its traditional on-premise offerings positions Oracle to sustainably grow its revenue.

Cloud departments also increase profitability

In addition to increasing revenue, Oracle’s expanding cloud divisions have led to significant improvements in profitability, further strengthening my optimistic outlook. In the fiscal first quarter, GAAP operating income margin increased to 30% and adjusted operating income increased to 43% from 26% and 41%, respectively. This margin expansion clearly illustrates the growing influence of high-margin cloud revenue on Oracle’s overall revenue mix. Meanwhile, management’s continued focus on automation and efficiency, such as leveraging autonomous databases and optimizing cloud data center operations, also contributed to lower operating costs and improved margins.

These margin gains, in turn, led to a significant increase in Oracle’s earnings. GAAP EPS increased 20% while adjusted EPS increased 17%. These numbers far outpaced revenue growth and show how Oracle can leverage ongoing change in its revenue mix to deliver superior profits. As cloud revenue grows and becomes an even more significant portion of Oracle’s total revenue, its fairly impressive margin expansion and EPS growth are likely to continue – especially if revenue growth continues to accelerate as expected.

Wall Street Estimates and Valuations

Wall Street analysts also predict an acceleration in Oracle’s revenue growth. Specifically, consensus estimates forecast revenue growth of 9.7% in fiscal year 2025, rising to 12.0% in fiscal year 2026 and 14.3% in fiscal year 2027. As far as I can tell, these growth estimates are based on the expectation that Oracle will continue to advance its cloud initiatives, including partnerships with major hyperscalers such as Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL)(GOOG). revenues grow.

Likewise, analysts expect a steady increase in Oracle’s EPS and forecast growth rates of 13.1%, 13.7%, and 16.4% for fiscal years 2025, 2026, and 2027, respectively. These forecasts align well with expected revenue growth and improving margin trends from Oracle.

Therefore, despite the stock’s ongoing rally over the last year, I believe Oracle is fairly valued, trading at just over 29 times this year’s expected earnings per share. Given the forecast acceleration in sales and earnings growth, I don’t think the current factor represents a worrying premium. Considering that analysts have historically taken a conservative approach to valuing Oracle, the stock could rise further from current levels as the company’s cloud transformation continues to progress.

Is ORCL Stock a Buy?

Wall Street analysts appear to be a bit more cautious about Oracle’s future prospects. Notably, Oracle stock is a Moderate Buy, with current analyst ratings of 19 “Buys” and 13 “Hold” ratings over the past three months. However, ORCL stock’s average price target of $178.04 implies a downside potential of 1.86%.

For the best guide on buying and selling ORCL stock, check out Brent Bracelin. He is the most accurate and profitable analyst covering the stock (in a one-year time frame), boasting an average return of 40.21% per rating and a perfect 100% success rate.

Final thoughts

In summary, Oracle’s outstanding cloud-based growth, expanding margins and even more impressive profit growth clearly demonstrate the company’s ongoing transformation and promising future. Given the rapid adoption of Oracle’s cloud solutions by hyperscalers, I believe the company remains well-positioned to continue its upward trend in revenue and earnings. That’s why, despite last year’s protracted rally that may raise concerns about the stock’s valuation, I think Oracle is fairly valued at today’s earnings multiple and that there is room for upside if the current narrative materializes.

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