Jim Cramer on Oracle Corporation (ORCL): ‘The Hyperscalers Need Oracle’
We recently compiled a list titled Jim Cramer’s Top Stock Picks: 10 Stocks with High Potential. In this article, we will have a look at where Oracle Corporation (NASDAQ:ORCL) ranks among the 10 stocks with high potential.
In a recent episode of Mad Money, Jim Cramer explains the current split between tech stocks and other sectors, noting that they often move in opposite directions. For instance, on a day when the Dow Jones Industrial Average gained 228 points and the S&P 500 rose by 0.13%, the NASDAQ—which is heavily weighted with tech stocks—fell by 0.52%.
“How did we get to this bizarre dichotomy between tech stocks and pretty much everything else, where the two groups now almost always seem to move in opposite directions? Take today: the Dow Jones Industrial Average gained 228 points, the S&P advanced 0.13%, but the NASDAQ—with all that tech in it—dropped a bomb. Yes, it fell 0.52%. How could there be such a schism?”
As a result, large institutions must shift investments between sectors since they can’t invest in both simultaneously. This situation is driven by market mechanics rather than fundamental news. When stocks are already performing well, attracting new investment is challenging, especially when safer investments offer decent returns. Consequently, either tech stocks or other sectors will perform well, but not both at the same time.
“It’s because there’s not enough money coming in from the sidelines, so these big institutions have to swap out of one group if they want to buy stock in another. Yet this action has nothing to do with fundamentals; it’s not about the news, it’s about pure market mechanics. When stocks are already red hot, it’s hard to attract new capital from the sidelines, especially when you can get a cozy 4% return for doing nothing. So, either tech wins or everything else wins, but there’s not enough cash for both of them to win at the same time.”
Market Shuffle: Winners vs. Losers and the Fed’s Big Decision
Cramer points out that this scenario leads to clear winners and losers instead of a spectrum of performance on a positive day. This is happening alongside uncertainty about whether the Federal Reserve will cut interest rates by 25 or 50 basis points in their upcoming meeting.
“What happens? We get winners and losers—not big winners and smaller winners, as you would normally expect on an up day like today. This is all against the backdrop of the big question: will the Fed cut rates by 25 basis points or 50 when it meets on Wednesday?
Now, you know me, I try to refrain from this parlor game of guessing the Fed’s next move based on the strength of the economy. Last week, when *The Wall Street Journal* indicated the Fed may actually be leaning toward 50 basis points, we saw this great migration into cyclicals, especially anything related to housing. Of course, last week, there was just enough good news to propel the entire market, which is why it was the best week of the year.”
Cramer also mentions that despite his tendency to avoid speculating on the Fed’s actions, recent market movements have been influenced by expectations about rate cuts. For instance, when The Wall Street Journal suggested that the Fed might opt for a 50 basis point cut, there was a significant shift toward cyclical stocks, especially those linked to housing. This shift, combined with other positive news, led to the best week of the year for the market.
“This leads me to this newfound great divide between tech and non-tech, because that’s how this market seems to be trading. It’s a big reason why I’m out here in Silicon Valley this week. Today, we saw a market that doesn’t believe in AI, AI, or tech in general, for that matter. It’s a market that believes a 50-basis-point rate cut will shift money from semiconductors to housing and anything housing-related, and people want to get ahead of that.”
“Anything But Tech”
Jim Cramer observed that Monday’s market saw a broadening of winners. Healthcare stocks, retailers, and consumer packaged goods companies all performed well. Even oil stocks, which have been struggling, are making a comeback. This is unusual because typically when cyclical stocks rally, sectors like healthcare and consumer products would decline. However, Cramer attributes this trend to a broader market shift he refers to as “ABT,” which stands for “anything but tech.” In other words, today’s market focus is on sectors outside of technology.
“Today, the winners broadened out. The healthcare stocks got jiggy, retailers worked, and consumer packaged goods companies outperformed. Even the much-maligned oils are rallying. It’s crazy—healthcare and consumer products should be selling off when cyclicals rally, but that’s not what’s happening because it’s *ABT*. No, I’m not talking about the symbol for Abbott Labs. ABT means “anything but tech,” and that’s what today’s market was about.”
Our Methodology
This article provides a summary of Jim Cramer’s latest Morning Thoughts, where he reviewed several stocks. We’ve chosen the ten most noteworthy companies he mentioned and ranked them according to how much they are owned by hedge funds, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Investors: 93
Jim Cramer reported that Melius Research has upgraded Oracle Corporation (NASDAQ:ORCL) to a buy rating from hold, following a strong earnings report driven by AI and an increase in long-term guidance. Although Oracle Corporation (NASDAQ:ORCL)’s stock has already risen 54% this year and 14% just last week, analysts believe the stock could still have more room to grow. They emphasized that Oracle Corporation (NASDAQ:ORCL) is essential for hyperscalers, and this might be just the beginning of its upward move.
“Melius Research upgraded Oracle to buy from hold after last week’s strong AI-fueled earnings report and long-range guidance hike. Analysts acknowledged some might think it’s a late call for a stock up 54% year to date and 14% last week alone, but they countered by writing that “we could be just in the middle of a move.” The hyperscalers need Oracle.
Oracle Corporation (NASDAQ:ORCL) is a strong investment choice due to its significant growth in cloud infrastructure and database services, driven by strategic investments in AI and partnerships with major players like AWS, Microsoft, and Google. In Q1 FY2025, Oracle Corporation (NASDAQ:ORCL) reported a 6.9% year-over-year increase in revenue to $13.31 billion, exceeding analyst expectations.
Cloud infrastructure revenue surged by 45%, reflecting Oracle Corporation (NASDAQ:ORCL)’s successful transition of legacy database customers to cloud-based solutions. Oracle Corporation (NASDAQ:ORCL)’s expansion in cloud services, particularly Infrastructure as a Service (IaaS), which grew 42% year-over-year, and its $12 billion in AI-related contracts highlight its strong position in these markets. Oracle Corporation (NASDAQ:ORCL) also projects annual revenue of at least $104 billion by FY2029, indicating robust future growth.
With a high gross margin of 77% in its cloud segment and improved operating margins, Oracle Corporation (NASDAQ:ORCL) is expected to achieve double-digit EPS growth in FY2025. This makes the stock an attractive investment, with a forward valuation of 21x earnings. Overall, Oracle Corporation (NASDAQ:ORCL)’s strategic focus, financial performance, and growth potential make it a compelling long-term investment.
Carillon Eagle Growth & Income Fund stated the following regarding Oracle Corporation (NYSE:ORCL) in its Q2 2024 investor letter:
“Oracle Corporation (NYSE:ORCL) stock rose to all-time highs after the company announced better than expected cloud infrastructure revenue. Oracle signed dozens of new customers, including two leaders in generative artificial intelligence. The backlog remains, and strong growth appears poised to accelerate.”
Overall ORCL ranks 3rd on our list of Jim Cramer's stock picks with high potential. While we acknowledge the potential of ORCL as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ORCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.