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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It has been a fun week for Oracle. First, one of its engineers, Saurabh Netravalkar, helped lead the US national cricket team to an upset win over Pakistan in the world cup tournament being held in America.
And second, Oracle clinched its status as a surprise winner in the artificial intelligence revolution. Four years ago, Larry Ellison’s company was essentially caught out. A licence-based software company with considerable mature cash flows, Oracle had to rely on these for the expensive M&A required to generate even a modest buzz.
Since then, however, its market cap has soared to nearly $400bn, as its cloud computing offering, sold as subscriptions, has been selected by the likes of OpenAI as the backbone of their large language models. Ellison described the turnaround as “astonishing” during the company’s conference call this week. Such pivots are hard to pull off, but Ellison appears to have done it.
Shares of Oracle rose 13 per cent on Wednesday, representing a boost of $45bn dollars of market capitalisation. The number that Wall Street fixated on was something called “remaining performance obligations”, otherwise known as customer purchase commitments that will eventually flip into accounting revenue. RPO balance totalled $98bn, a huge 44 per cent jump from a year ago. In turn, earnings have been compounding at a 10 per cent rate, while cash flow has exploded even more sharply.
Ellison pinpointed 2020 as Oracle’s inflection point. By coincidence, Oracle and Salesforce — founded by Ellison protégé, Marc Benioff — both had market capitalisations of roughly $170bn at the time. Salesforce has had an erratic journey since then, with its equity value today at $230bn. The software-as-a-service pioneer has struggled to find its way in the AI era as it and other rivals are dodging fears that AI will render application software obsolete.
Oracle, whose legacy is in databases, bet that it could be one of the winners in cloud infrastructure alongside Microsoft and Amazon. That seemed like a tall task, but the tech it built happened to fit well when AI came along. It is not quite the same as Team USA’s surprise win over Pakistan. But it is safe to say that, besides Ellison perhaps, few saw this AI victory coming.