Oracle’s stock took a hit on news about artificial intelligence, and that was probably the wrong reaction.
Recent news has signaled to investors that the AI business is booming and Oracle is doing well, but its shares are down nearly 3% from Tuesday’s high, including a 0.5% increase to $141.44 early Wednesday.
S&P 500
and
Dow Jones Industrial Average
They were flat in Wednesday trading, up 0.2% each.
Oracle shares initially rose after the company and Palantir announced on Tuesday that Palantir’s Foundry Platform and Artificial Intelligence Platform were now available on Oracle’s cloud-based AI infrastructure, signaling further expansion of Oracle’s AI-based business.
But then news broke that Elon Musk’s AI business, xAI, would be handling some of the computing required for AI in-house, with Musk explaining that xAI needed to get faster and control some of the servers it uses for Grok, a large-scale language model like OpenAI’s ChatGPT.
That triggered a drop in the stock price, but these two pieces of news indicate that the AI business is growing rapidly, and that there simply isn’t enough AI computing power to meet all the growing demand.
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xAI uses Oracle’s AI infrastructure, and we probably would have used more of it if we could, but Oracle has its hands full with services like xAI, Palantir, OpenAI, etc.
Jefferies analyst Brent Till noted in a report on Tuesday that the xAI deal isn’t reflected in Oracle’s financial guidance, meaning there’s no risk to quarterly profits from lost business, and that the company still sees very strong demand for its AI services.
Till rates Oracle shares a Buy with a $150 price target, and sees the company’s revenue growing to $65 billion in fiscal 2026 from an expected $53 billion in 2024. (Oracle’s fiscal year ends in May.)
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It’s easy to see AI computing growing even more. OpenAI and Grok are public AI models, but this is just the beginning. Eventually, companies will use their private data to train AI models to operate more efficiently and serve their customers better. This means more business for Oracle and other companies in the future.
If the AI computing race were a baseball game, we’re still in the early stages. The news about Palantir and xAI proves that.
Most of the AI infrastructure runs on Nvidia chips, and the company is the big winner in all of this. It’s no secret: Nvidia shares are up 3,100% over the past five years.
Email Al Root at allen.root@dowjones.com.
