(Reuters) – Oracle shares rose nearly 9 percent on Wednesday as investors cheered surging demand for the company's relatively low-cost cloud infrastructure services driven by artificial intelligence (AI) applications.
If the rally continues, it would add more than $28 billion to the company's market capitalization, which will reach $340 billion as of Tuesday's close. Its shares have risen 18% so far this year.
Oracle is strengthening its cloud-infrastructure division, which is expected to drive growth by renting cloud computing and storage to companies, but it will face competition from Alphabet Inc's Google, Microsoft Corp and Amazon.com Inc.
Oracle's cloud infrastructure is marketed as a cheaper option than rivals, attracting business from venture-capital-backed generative AI startups such as Elon Musk's xAI.
Oracle announced on Tuesday that it has partnered with ChatGPT developer OpenAI and Google Cloud to extend its cloud infrastructure to customers.
“OpenAI's announcement that it will use OCI (Oracle Cloud Infrastructure) only strengthens Oracle's credibility as an AI platform, while its new relationship with Google broadens the distribution of the company's database,” Evercore analyst Kirk Materne wrote in a note.
ChatGPT developer OpenAI said the partnership will enable it to use Microsoft's Azure platform on Oracle's infrastructure for some use cases, and that new language-learning models will be trained on a supercomputer built in collaboration with Microsoft.
Oracle shares are trading at 19.59 times forward earnings, lower than Amazon.com's 36.35, Microsoft's 32.60 and Alphabet's 21.85.
The company reported weaker-than-expected fourth-quarter earnings on Tuesday as its legacy database and enterprise resource planning software businesses face competition from cheaper options.
“As switching costs become less of an issue amid major digital transformation, we expect there will be significant switching away from Oracle software to competing database and ERP software companies,” said Morningstar analyst Julie Sharma.
(Reporting by Akash Sriram in Bengaluru; Editing by Mohammed Safi Shamsi)
