Artificial intelligence (AI) is the biggest tailwind in the technology sector right now. Generative AI has myriad applications, and mega-cap-tech behemoths are leading innovation efforts across the industry.
One of the subtle growth opportunities in AI is data centers. In fact, Statista estimates that network infrastructure, storage, and server solutions will be a $439 billion opportunity by 2028.
Indeed, Nvidia and Advanced Micro Devices have so far been big beneficiaries in data center-network services. However, smart investors know that there are peripheral opportunities outside of the obvious winners.
One AI data center stock that I've been monitoring is Oracle (ORCL 0.09%). Let's break down why Oracle could be a lucrative opportunity for long-term investors as the data center boom continues to unfold.
AI data centers are on the rise, and...
Outside of Nvidia and AMD, a number of other tech businesses are making a splash in the data center realm.
Vertiv is a unique opportunity that's been witnessing outsize growth from the rising demand for data center services. Moreover, the company's close ties to Nvidia certainly don't hurt.
Furthermore, Amazon recently announced an $11 billion investment to build out additional data center infrastructure. This isn't entirely surprising considering Amazon is a leader among cloud-computing platforms, and the company is developing its own semiconductor training and inferencing chips.
Image source: Getty Images.
...Oracle is quietly emerging as a major force
Back in March, Oracle announced financial results for its third quarter of fiscal 2024 (ended Feb. 29). On the surface, the company's revenue growth of 7% year over year might appear mundane.
However, Oracle reported a number of other key performance indicators outside of traditional financial statements. Perhaps the most important of these metrics was remaining performance obligations (RPO). This is a critical operating metric because it measures a company's backlog, providing investors with a glimpse of future growth.
As of the end of Oracle's fiscal Q3, RPO grew 29% year over year to $80 billion -- a record for the company.
One of the reasons for such high backlog? Data centers. During the earnings call, Oracle's chairman, Larry Ellison, stated that the company "is building data centers at a record level".
He isn't exaggerating. Just this week, Bloomberg reported that one of Elon Musk's start-ups, xAI, is rumored to be talking to Oracle for a $10 billion deal to rent cloud servers.
Is Oracle stock a buy?
The potential deal between Oracle and xAI does not make the stock a buy. The deal could fall apart, and there is no guarantee xAI will use Oracle for its cloud solutions.
With that said, I'm cautiously optimistic that the deal will come to fruition. Oracle already works with xAI as it pertains to other AI services. Moreover, Larry Ellison and Elon Musk have a well-publicized positive relationship -- so much so that Ellison used to serve on Tesla's Board of Directors.
The bigger idea here is that businesses are relying on more than just the legacy hyperscalers of Alphabet, Microsoft, Amazon, and Nvidia for their AI cloud needs. Whether Oracle closes its deal with xAI, I see the negotiations as a major source of validation that there will be many winners outside of big tech in the AI data center realm.
Although Oracle's price-to-earnings (P/E) ratio of 31.9 isn't exactly dirt cheap, it is far below many of its peers.
ORCL PE Ratio data by YCharts.
I think now is a terrific opportunity to begin building a position in Oracle stock. As demand for AI cloud-storage solutions continues to rise, Oracle should see an influx of business from both new and existing customers.
The secular trends fueling AI represent a new growth narrative for Oracle, and I see now as a great time to scoop up some shares. The best days look like they are ahead for Oracle, and I'm bullish that further gains are in store for long-term shareholders.
