Oracle Earnings: Cloud Infrastructure Growth Accelerates but Upside Capped; FVE Up 13% to $76

Narrow-moat Oracle’s fourth quarter exceeded expectations on the top and bottom line as its cloud infrastructure business’ growth rate nearly doubled from last year, showing solid health in the nascent business. Nonetheless, our concerns remain for what we believe is a more limited upside to the cloud infrastructure market than what the market is baking in. Even with this concern in mind, we are raising our fair value estimate to $76 from $67 per share, after accounting for the time value of money as we roll our model ahead. However, with shares up by over a whopping 80% over the last trailing 12 months, we still strongly believe that shares are significantly overvalued, in 1-star territory. We reiterate our belief that Oracle is a moaty, sticky company, but we continue to believe switching costs are vulnerable in its core enterprise resource planning and database markets as enterprises shift workloads to the cloud, causing reflection on how to best meet their software needs.