Better Buy: International Business Machines vs. Oracle

Though these two tech industry behemoths share a number of similarities, Oracle (NYSE: ORCL) shareholders have certainly enjoyed 2017 more than IBM (NYSE: IBM) owners. If not for IBM’s recent stock price pop following its third-quarter earnings report, the disparity would be even greater.

Oracle shares are up 29% this year while IBM has meandered its way to a 2.5% loss. But both are transitioning away from legacy hardware sales, and both are laser-focused on their plans to capture major shares of the cloud, artificial intelligence (AI), and software-as-a-service (SaaS) markets. But given their current valuations and long-term prospects, which is the better buy today?

Image source: Oracle.

The case for Oracle

With each successive earnings release and quarterly conference call, it becomes clearer that Oracle co-CEO’s Safra Katz and Mark Hurd are all about the cloud — and that it’s working. Sort of. Last quarter’s $9.2 billion in revenue was a 7% jump  year over year, and cloud sales climbed 51% to $1.5 billion. As Katz put it, “The sustained hyper-growth in our multi-billion dollar cloud business continues to drive Oracle’s overall revenue.”

Katz, like Hurd and founder CTO Larry Ellison, continually points to revenue gains in the cloud as “wins,” but giving that the segment still only accounts of 16% of total sales, Oracle is still in a relatively early stage of its transition. That said, its focus on delivering SaaS solutions is spot on, considering that software as a service expected be one of the fastest-growing segments in the burgeoning cloud market.

Oracle’s 61% jump in cloud SaaS sales to $1.1 billion stood out last quarter. Its 21% rise  in earnings per share to $0.52 was also noteworthy. Oracle may not yet have reached the top tier of cloud and AI providers, but it’s moving in the right direction.

And it isn’t resting on its laurels, as its recently  unveiled automated, AI-driven cloud solution confirms. With the proliferation of Internet of Things (IoT) devices generating unprecedented amounts of data that needs to be analyzed, AI solutions are another hyper-growth opportunity, and Oracle is diving into it, which will help drive the company’s growth long into the future.

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