Oracle Is Outshining Microsoft and Amazon. What It Has That They Don’t.

Oracle is the key infrastructure partner for the $500 billion Project Stargate investment plan. (Justin Sullivan/Getty Images)

Going up against Microsoft and Amazon.com is a daunting task. But Oracle is eclipsing its bigger cloud-computing rivals by positioning itself as a neutral provider of artificial-intelligence infrastructure.

When Oracle began building up its cloud-computing business to compete with Amazon and Microsoft a decade ago, there was skepticism. But now, AI has changed the narrative, supercharging Oracle’s growth.

Oracle stock was up 31% on Wednesday after it revealed a huge backlog of contracted AI computing work. That adds to a nearly fourfold gain in the shares since the launch of ChatGPT in November 2022.

One key to Oracle’s success is that it isn’t developing its own large AI models that compete with potential clients. Its neutral status gives it significant advantages: It has partnerships with Microsoft, Google and Amazon, which let Oracle’s databases run in their clouds.

Oracle’s neutrality makes it an attractive choice for other AI companies looking to take on the Big Tech incumbents. Meta Platforms and Elon Musk’s xAI are among its clients.

The business of AI is gradually shifting from training models to inference, the process of generating answers or results from the models. Oracle executives told analysts they expect to be a winner from the shift, as the company introduces a database allowing companies to connect leading AI models to their private data.

“We are more bullish on the long term given Oracle’s positioning for the AI era. Oracle’s unique full-stack position and redesigned database enable enterprises to securely blend proprietary data with leading LLMs,” or large language models, wrote Mizuho analyst Siti Panigrahi in a research note.

Panigrahi raised his target price on Oracle to $350 from $300 in a research note. He kept an Outperform rating on the stock.

Is Oracle’s growth sustainable? A lot depends on the future of Project Stargate, the $500 billion investment plan in AI infrastructure being spearheaded by OpenAI, the developer of ChatGPT, and Japan’s SoftBank Group . If the money flows through and Oracle can maintain its position as the preferred cloud-computing provider, then it could mount an even more formidable challenge to Microsoft and Amazon.

“Oracle’s cloud infra segment guide is a net bullish readthrough to Microsoft, but the prospect that Oracle could be taking some OpenAI inference share coupled with the ongoing OpenAI partnership talks might add to the uncertainty,” wrote UBS analyst Karl Keirstead.

Keirstead noted that Oracle shares trade at more than 40 times his forecast for the company’s earnings per share in 2026. The comparable number is roughly 30 times for Microsoft and Amazon.

Still, he raised his target price on the stock to $360 from $280 and kept a Buy rating, saying the company is “perhaps the biggest large-cap growth acceleration story in all of tech.”

Write to Adam Clark at adam.clark@barrons.com