Over the past century, the U.S. economy has produced more of the world’s leading companies than any other nation. Innovation has been key to that sustained dominance, as over time, various industries have evolved to create more value.
- In 1901, United States Steel Became the first $1 billion company in the world.
- By 1955, the automotive industry was powering the economy, and General Motors Became the world’s first $10 billion company.
- By 1995, General Electric The conglomerate was so large that it sold everything from home appliances to aircraft engines. It climbed the value ladder and became the first company to amass a market capitalization of $100 billion.
- In 2018, the technology sector reigned supreme, and apple Driven the iPhone to become the world’s first $1 trillion company.
Apple is the biggest company on Earth today, but it has since joined Microsoft, AmazonGoogle Parents the alphabetAnd Nvidia Into the trillion-dollar club.
Some new candidates are emerging due to their connection to artificial intelligence (AI), creating opportunities for companies to create greater value. One of those companies is a tech giant the oracle (ORCL 0.21%)which has the potential to accumulate a $1 trillion market cap over the next decade based on historical growth rates and leading position in the AI market.
Oracle is valued at just over $310 billion today, so if I’m right, its stock could yield a whopping 223% for investors who buy it today. Let’s find out how it can happen.
Oracle has a long history of technology leadership
Oracle began developing database management software in the 1970s and 1980s. But it saw the age of the Internet on the horizon and helped prepare its business customers for the online world in the 1990s. But his most important move came in 2016 when he founded Oracle Cloud Infrastructure and created a strong position in the cloud computing industry.
The company has since focused on serving businesses in the cloud, offering them a large portfolio of ready-made online applications in every industry from financial services to retail. But with artificial intelligence, Oracle could unlock the biggest cloud revenue opportunity in its history. Thanks to their ability to increase productivity and transform customer experiences, businesses are rushing to get their hands on AI-powered tools.
The cloud is where most companies store their data and run their operations, so it has also become the place where AI is developed, trained and deployed. This requires centralized data centers equipped with powerful semiconductor hardware, and Oracle is working with Nvidia — the leader in data center chips designed for AI workloads — to deliver the same.
In fact, a few months ago, its co-founder and president Larry Ellison said that Oracle has the world’s highest-performance, lowest-cost graphics processing unit (GPU) cluster technology. And in the most recent fiscal 2024 first quarter (ended Aug. 31), he doubled down on those comments, saying Oracle’s interconnected Nvidia superclusters could train AI models twice as fast and at half the cost of other cloud providers.
Oracle’s innovation is creating new revenue opportunities
Ten years ago, cloud-related software and services accounted for just 20% of Oracle’s total revenue. In the most recent fiscal 2024 first quarter, that number was 83% (and rising).
And while the company posted revenue growth of just 8% in the quarter on a year-over-year basis, the cloud remains a bright spot.
Beneath the surface of the headline earnings numbers were some incredibly impressive numbers. Cloud revenue generated by Oracle’s infrastructure-as-a-service and software-as-a-service products combined totaled $4.6 billion, an increase of 30% from the year-ago quarter. That’s almost half of the company’s total cloud revenue, so it’s an important growth driver.
But Oracle’s cloud infrastructure revenue alone came in at $1.5 billion, up a whopping 66% year over year. That could get even better in future quarters as Ellison told investors that leading AI development start-ups have signed deals to buy $4 billion worth of capacity in Oracle’s Gen 2 cloud infrastructure. That number double From $2 billion just three months ago.
On its Q1 conference call, Oracle management told investors that the company has about $65 billion in bookings across the business. It said demand currently outstrips supply and its biggest challenge is building data centers as quickly as possible. As a result, its guidance for the upcoming second quarter shows total revenue growth of only 7%, but the company said it remains committed to delivering acceleration in the second half of the fiscal year.
Here’s how Oracle can become a $1 trillion company
While Oracle’s revenue growth has only had a short-term slowdown, the company has built an excellent long-term track record since becoming a public company in 1986. That year and in fiscal year 2023 (end of May 31), the figure was $50 billion with $55 million in revenue. That represents a compound annual growth rate of 20.2% over a 37-year period.
As I touched on earlier, Oracle is valued at $310 billion as of this writing. Based on its fiscal 2023 earnings, its stock trades at a price-to-sales (P/S) ratio of 6.2. Assuming the P/S ratio remains constant in the future, Oracle would need to generate $161 billion in annual revenue to support a $1 trillion market value.
If its revenue grows by 12.4% per year, it could reach the milestone in a decade. If instead its revenue grows on trend — which is 20.2% per year — then Oracle could become a $1 trillion company in less than seven years.
However, given the pace at which its AI divisions are growing, they could soon become a major part of Oracle’s business and potentially accelerate its overall growth rate. This could bring the company even closer to entering the trillion-dollar club.
In any case, Oracle is a great candidate to join their tech peers Apple, Microsoft, Amazon, Alphabet and Nvidia with a $1 trillion (or more) valuation. Investors who are willing to hold the stock for several years can get a 223% return on their money.
John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of Amazon subsidiary, The Motley Fool. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Anthony De Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Microsoft, Nvidia and Oracle. The Motley Fool recommends General Motors. Motley Fool has a disclosure policy.