By Akash Sriram
(Reuters) -Oracle shares jumped 9% on Wednesday as investors cheered a boom in demand for the company’s relatively low-cost cloud infrastructure services from artificial intelligence applications.
If the gains hold, the company will add about $30 billion to its market valuation of $340 billion as of Tuesday market close. The shares have so far this year gained 18%.
Oracle has been ramping up its cloud infrastructure unit, which is expected to drive growth by renting out cloud computing and storage to companies, but will face competition from Alphabet’s Google, Microsoft and Amazon.com.
Oracle’s cloud infrastructure, pitched as a less-expensive option to its rivals, has attracted business from venture capital-funded generative AI startups, including Elon Musk’s xAI.
Oracle said on Tuesday it had tied-up with ChatGPT-maker OpenAI and Google Cloud to extend its own cloud infrastructure to customers.
“The announcement that OpenAI will now be using OCI (Oracle Cloud Infrastructure) only adds to Oracle’s credibility as an AI platform and the new relationship with Google also broadens the company’s distribution for its database,” Evercore analyst Kirk Materne wrote in a note.
The partnership enables OpenAI to use Microsoft’s Azure platform on Oracle’s infrastructure for some use-cases, while its new language learning models are being trained on a supercomputer built with Microsoft, the ChatGPT-maker said.
Oracle’s stock was trading 19.59 times to its forward earnings estimates, lower than that of Amazon.com’s 36.35, Microsoft’s 32.60 and Alphabet’s 21.85.
The company’s fourth-quarter results missed estimates on Tuesday, as its legacy database and enterprise resource planning software business faces competition from less-expensive options, as more small- and medium-sized businesses digitize their operations.
“We suspect there is ample churn off of Oracle software to competing database and ERP software firms due to the eroding switching cost argument amid massive digital transformations,” Morningstar analyst Julie Sharma said.
(Reporting by Akash Sriram in Bengaluru; Editing by Mohammed Safi Shamsi)