In the last two years, the global demand for artificial intelligence (AI) services has skyrocketed, particularly in cloud computing.
Companies worldwide are leveraging cloud infrastructure to train AI models, resulting in a surge in cloud spending. According to Goldman Sachs, the global cloud infrastructure market is expected to grow from $496 billion in 2022 to a staggering $2 trillion by 2030. Generative AI alone could contribute $200 to $300 billion to annual cloud spending by the end of the decade. Among the companies vying for dominance in this lucrative space are Oracle (ORCL) and Microsoft (MSFT).
Oracle’s Strategic Expansion in Cloud AI
Oracle has emerged as a powerful player in the cloud AI space. The company's cloud infrastructure revenue surged by 45% year-over-year in the first quarter of fiscal 2025, reaching $2.2 billion. This impressive growth outpaced Oracle’s overall revenue increase of 7%, showcasing its strategic focus on AI-driven cloud services.
One of Oracle’s significant advantages is its aggressive investment in infrastructure-as-a-service (IaaS), which is forecast to grow to $580 billion by 2030. With demand for its cloud infrastructure exceeding supply, Oracle has committed to doubling its capital expenditures in fiscal 2025 to $15 billion. This will help the company meet the rising demand for AI-related cloud services. Oracle’s management is confident that this move will fuel long-term growth, with the company projecting revenue to grow 10% in fiscal 2025 and 12% in fiscal 2026.
Oracle’s remaining performance obligations (RPO), which represent the total value of contracts yet to be fulfilled, also indicate strong future growth. In the first quarter of fiscal 2025, Oracle’s RPO soared 80% year-over-year, with its overall RPO increasing by 52% to $99 billion. This pipeline of committed contracts positions Oracle for sustained revenue growth as it continues to convert these obligations into actual sales.
Microsoft's Early AI Advantage
Microsoft has been a prominent player in the AI race, thanks to its partnership with OpenAI, the developer of ChatGPT. This collaboration has allowed Microsoft to quickly integrate AI tools across its products, driving adoption in its Azure Cloud, Microsoft 365, and developer platforms like GitHub. Microsoft’s generative AI assistant, Copilot, saw a 180% year-over-year growth in GitHub deployments and accounted for 40% of the platform’s revenue growth in fiscal 2024.
Additionally, Microsoft reported a 60% increase in the number of customers using its Azure AI cloud service in the last quarter, with AI services contributing 8 percentage points to Azure’s overall revenue growth. While Microsoft is the second-largest provider of cloud infrastructure services, with a 20% market share, Oracle’s recent strides in AI-related cloud services indicate a shift in the competitive landscape.
Oracle’s Future Growth Potential
Oracle’s strategy to meet the rising demand for AI services positions it as a strong contender in the cloud infrastructure market. Its forecasted revenue growth of 10% in fiscal 2025 and 12% in fiscal 2026 reflects confidence in the company’s ability to convert its massive RPO into tangible results. Oracle’s top-line growth is expected to reach $104 billion by fiscal 2029, with annual earnings growth surpassing 20% over the next five years, outpacing Microsoft’s projected earnings growth of under 15%.
For investors, Oracle presents a compelling opportunity. While Microsoft continues to grow rapidly, Oracle’s expanding cloud infrastructure and its focus on AI-driven growth give it an edge in the long-term race for cloud dominance. With the global cloud market set to explode in the coming years, Oracle's strategic investments position it as a formidable player in the AI cloud revolution.
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