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This move is fueled by UBS’ growing conviction that Oracle has established an advantage that has not been fully recognized in terms of its Graphics Processing Unit (GPU) capacity and its Oracle Cloud Infrastructure (OCI) architecture.
As a result, analysts believe that this advantage could attract new clients and increase the utilization of OCI services.
“Our independent checks corroborated the notion that Oracle is benefiting from outsized allocations of Nvidia GPUs relative to its size. We could be sitting in front of 6-12 months of GPU shortage noise and we haven’t even seen the $2b in AI start-up commitments convert to OCI usage,” analysts wrote in a note.
Despite Oracle’s stock already having shown a year-to-date increase of 42%, UBS is of the opinion that the existing constraints on GPU supply might lead to continued outperformance in Oracle shares.
“The AI story still has plenty of time/room to play out, given: a) we may be just one quarter into AI start-ups ramping their use of OCI, and we don’t think that Cohere has kicked-off its ramp yet; b) we are sitting in front of what could be a constructive CloudWorld event and Investor day; c) while the FCF multiple looks full, the P/E multiple of 20x does not on our estimates; and d) only a minority (~40%) of sell-side analysts even rate Oracle shares a Buy,” analysts added.
ORCL shares popped nearly 2% higher in pre-open Tuesday.
