RBC starts Oracle at Neutral on competition concerns

Investing.com -- RBC Capital analysts initiated coverage of Oracle Corporation (NYSE:ORCL) with a Sector Perform rating and a $165 price target, expressing concerns about rising competition and the sustainability of some recent growth drivers.

"While we like Oracle's market leadership position in database and ongoing cloud transformation, we have concerns about competition and the sustainability of some recent growth drivers, particularly OCI and GenAI," RBC wrote.

Oracle's core database business remains a key asset, according to the bank, but they believe it faces mounting challenges from multiple fronts.

Competition on multiple fronts continues to get stronger, including hyperscale cloud vendors (AWS/Azure/GCP), MongoDB (NASDAQ:MDB), PostgreSQL, and NewSQL vendors, RBC noted.

The firm added that while pricing may support growth, Oracle's net new workload growth could be limited moving forward.

Oracle Cloud Infrastructure (OCI) has shown impressive growth, reaching $8.6 billion in annual recurring revenue (ARR) with a 54% growth rate, according to RBC estimates.

However, analysts remain cautious about the future of OCI.

"We have concerns over the sustainability of this growth, especially for non-Oracle customers," RBC wrote, adding skepticism that OCI can become "the fourth hyperscaler," especially given its much smaller size compared to competitors like AWS and Azure.

RBC also highlighted Oracle Fusion as one of the company's more promising growth engines, particularly within financials.

"Customers view the product favorably, and partners believe the product remains ahead of the competition," the analysts wrote. However, they expect Workday (NASDAQ:WDAY) Financials to close the gap over time.

Although the firm is bullish on generative AI (GenAI) technology, it is skeptical of Oracle's ability to capture significant value from it.

"Our checks support our skepticism on Oracle's GenAI announcements, especially when compared to the innovation taking place at Microsoft (NASDAQ:MSFT)," RBC noted.

With Oracle trading at all-time highs of around $175, RBC's price target of $165 reflects a more cautious outlook, citing Oracle's "relatively slower EPS growth" compared to peers.