Database software giant Oracle is set to report earnings late Tuesday, in an environment that has not been friendly to software stocks. Oracle stock is off to a strong start this year, however, as analysts are increasingly confident the 46-year-old company can harness AI demand to boost its cloud-computing business.

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Here’s what to know ahead of Oracle’s report:

By The Numbers

For the May-ending quarter, analysts project Oracle’s adjusted earnings will come in 1% lower than a year earlier, at 1.65 per share. Sales are seen rising 5.5% to $14.6 billion, according to FactSet.

The quarter marks the end of Oracle’s fiscal 2024.

Oracle projected roughly 5% sales growth for the fiscal fourth quarter following its previous earnings report in March.

Oracle Stock: Focus On Fiscal Year Guidance

Investors will be listening closely for Oracle’s guidance. Chief Executive Safra Catz typically provides the company’s outlook to analysts on Oracle’s earnings calls.

“For us, Oracle remains an interesting large cap story in software, as it should see ongoing benefits from further AI adoption as one of the few providers with a modern compute platform that will benefit from increasing capacity,” Barclays analyst Raimo Lenschow wrote in a Monday client note. “Only a little of this will be visible in Q4, which means that the share price reaction is likely more dependent on the (fiscal year 2025) guidance rather than the printed results.”

Barclays holds a positive overweight rating for Oracle stock. On average, analysts expect Oracle sales to grow 8.5% to $57.8 billion for its next fiscal year, which ends with May 2025. But Lenschow noted that Oracle may need a higher number to reach its longer-term guidance of $65 billion in annual revenue in fiscal year 2026. Catz reiterated that long-term target a call with analysts in March.

Oracle Stock: Cloud Infrastructure In Focus

Oracle is emerging from a long and occasionally bumpy transition from an on-premises software provider to a subscription-based cloud firm.

A central part of that effort is the Oracle Cloud Infrastructure business. OCI offers cloud-based servers, storage and other computing services to other businesses.

Oracle is looking to make up ground in the category against market leaders Amazon (AMZN)and Microsoft (MSFT).

The business is also crucial to Oracle’s strategy to benefit from the growth of artificial intelligence. The company has been buying up chips from Nvidia (NVDA) in a bid rent out capacity to other enterprises seeking the vast computing power required for AI algorithms.

For its February-ending quarter, Oracle said its cloud infrastructure revenue increased 49% year over year to $1.9 billion. Sales grew 52% year over year in its November quarter, 66% in the firm’s August quarter and 76% in the May 2023 quarter.

Guggenheim analyst John DiFucci wrote Monday that he believes Oracle can meet expectations of at least 50% year-over-year growth for its cloud infrastructure sales in its May quarter. Guggenheim rates Oracle stock a buy.

As of the end of February, Oracle said it had more than $80 billion in remaining performance obligations, driven by AI-related cloud demand. Investors are debating how quickly Oracle can build the data center capacity to meet demand.

“Our sense is that many investors remain skeptical on whether Oracle can deliver on the OCI front, but in our view it has become a matter of when they’ll be able to recognize the large backlog of deals, rather than if,” DiFucci wrote to clients.

Software Stocks Slump

Oracle’s earnings come amid a rough patch for software stocks. A list of companies that includes Salesforce (CRM), Workday (WDAY) and database competitor MongoDB (MDB) suffered steep slides late last month after earnings reports that disappointed.

Oracle dipped in tandem with those stocks in the final week of May. But shares bounced back, with a 7.5% gain for the week ending June 7. Oracle stock is up a fraction at 126.22 on the stock market today.

Shares have gained 20% overall this year, outpacing a 12% gain for the S&P 500. Oracle stock gapped up after reporting better-than-expected fiscal third quarter earnings in March.

Heading into its report, Oracle stock has formed a cup pattern, with a potential buy point at 132.77, according to MarketSurge. Shares have an IBD Composite Rating of 83 out of a best-possible 99.

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