By Zaheer Kachwala
(Reuters) - Oracle (NYSE:ORCL) shares rose more than 10% on Tuesday as a push to embed AI into its cloud service products boosted its first-quarter results and helped it narrow the gap with market leaders.
Despite being a late entrant to the cloud business, the company's rapid AI investments has made its software an attractive option for companies looking to streamline operations.
Revenue from its cloud products, seen as a less expensive option compared to that of Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), rose 21% to $5.6 billion the first quarter, while its overall revenue of $13.31 billion beat estimates.
Stifel analysts said Oracle's revenue will grow further, thanks to increasing AI infrastructure bookings and its tie-ups with cloud services.
If current share gains hold, Oracle is set to add around $39 billion to its market value. Its shares have risen more than 32% this year, while Microsoft and Amazon have added 8% and 15%, respectively.
The stock is trading at a forward price-to-earnings ratio of 21.30. It was 29.81 for Microsoft and 31.50 for Amazon. At least 10 brokerages have raised their target price for Oracle's stock since Monday.
Oracle's cloud infrastructure is also powered by Nvidia (NASDAQ:NVDA)'s hardware, which is considered the gold standard for AI chips.
Oracle is also partnering with rival cloud service providers to make it simpler for customers to connect their data across vendors. On Monday, it announced a tie-up with Amazon Web Services, after having signed a similar deal with Alphabet (NASDAQ:GOOGL)'s Google Cloud in June.
"Now with the help of all big three (Azure, Google Cloud and now AWS joining force), we will continue to observe a nice cloud revenue lift as well as growth acceleration thanks to the multi-cloud partnership," Bernstein analysts said in a note.