There's no denying the impact of artificial intelligence (AI) on the tech landscape over the past couple of years, but the extent of the transformation remains to be seen. A quick review of the world's most valuable companies by market cap provides compelling evidence: Nine of the top 10 -- all members of the $1 trillion club -- have undeniable ties to AI.
Several key players in the semiconductor and information technology (IT) spaces have taken up residence on the list. Nvidia provides 98% of the graphics processing units (GPUs) that underpin generative AI in data centers, Taiwan Semiconductor Manufacturing's foundry produces roughly 90% of the world's most advanced AI chips, and Broadcom is a critical part of tech infrastructure, with 99% of all internet traffic passing through its equipment.
With a market cap of just $457 billion, it might seem premature to presume Oracle(NYSE: ORCL) will earn its membership in this elite fraternity. However, the company's recent business performance and management's long-term outlook provide compelling evidence that the accelerating demand for AI will fuel additional growth for years to come.
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A trusted technology partner
Roughly 98% of Global Fortune 500 companies are Oracle customers, according to the company, using some combination of its cloud, database, and enterprise software offerings. This gives Oracle a vast target market to peddle its AI and cloud solutions.
This has helped drive the company's growth higher. During Oracle's fiscal 2025 second quarter (ended Nov. 30), revenue grew 9% year over year to $14.1 billion, while its operating income grew by 17%. Investors were concerned about its operating income margin, which fell from 21% in Q1. However, much of the decline was attributed to foreign currency headwinds resulting from a dramatic strengthening of the U.S. dollar -- not due to operational issues.
Most businesses are looking for a trusted source to guide their AI adoption, helping boost Oracle's fortunes. CEO Safra Catz called out "the growing trend of customers and longer contracts, as they see firsthand how Oracle Cloud services are benefiting their businesses." She also noted that record demand for AI drove its cloud revenue up 52% year over year, far outpacing the growth of its larger cloud rivals.
This trend is, in turn, fueling the company's remaining performance obligation (RPO) -- or contractual obligations not yet included in revenue -- which surged 50% year over year in constant currency to $97.3 billion. The fact that RPO is growing faster than revenue provides insight into future growth, which, in this case, is robust.
In the third quarter, Oracle expects its revenue growth rate to accelerate to 10% at the midpoint of its guidance, fueled by cloud revenue growth of 26%. This will drive adjusted earnings per share (EPS) growth of about 8%.
The path to $1 trillion
Oracle has a long, notable history of helping customers choose the most suitable IT, cloud, and AI solutions. That puts the company in the catbird seat to help it join the generative AI revolution. Given the magnitude of the opportunity, this transition will take years, if not decades.
According to Wall Street, Oracle is expected to generate revenue of $57.7 billion during its fiscal 2025 (which began June 1), giving it a forward price-to-sales (P/S) ratio of roughly 8. Assuming this P/S remains constant, Oracle would need to grow its revenue to approximately $126 billion annually to support a $1 trillion market cap. Analysts are forecasting revenue growth of about 9% for the current fiscal year and 13% thereafter. If the company achieves these targets, Oracle could achieve a $1 trillion market cap by 2032.
However, management recently boosted its long-term outlook and is forecasting revenue of at least $104 billion by fiscal 2029, or a compound annual growth rate (CAGR) of greater than 16%. If Oracle achieves its internal guidance, it will likely reach a market cap of $1 trillion by 2031 -- or sooner.
Estimates regarding the market value of generative AI continue to soar. The market could be worth between as much as $15.7 trillion annually by 2030, according to Big Four accounting firm PwC.
If Oracle can capture just a fraction of that opportunity and continues serving up compelling AI solutions to its customer base, its growth spurt will continue for the rest of this decade, helping the company join the company of trillionaires in short order.
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Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
