Stock-Split Watch: Is Oracle Next?

Stock splits have gained in popularity in recent years as the pace of the market's growth has risen, with many companies going this route in order to get per-share prices back to levels retail investors are comfortable with. Such a move doesn't alter a company's fundamentals. It simply reduces the price of each share while increasing the number of outstanding shares proportionally.

Even though a forward stock split is simply a cosmetic move, some companies believe that doing so could make their shares accessible to a bigger pool of investors, potentially raising demand which leads to an increase in the stock price. Oracle (NYSE: ORCL) is a company that has frequently taken this route over the course of its history as a publicly traded company.

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Since going public in March 1987, it has undertaken a total of 10 stock splits with its last split occuring in October 2000. Share prices have jumped 373% since that split. Does this mean the time is ripe for Oracle to do another split? Let's find out.

It has been a long time since the last split, but another can't be ruled out

Given that Oracle last split its stock more than 24 years ago, investors may be wondering if it would go down this route once again. After all, many brokerages allow investors to buy fractional shares, greatly reducing the need for a split. Moreover, the stock's price of around $169 isn't very high. Other names in the technology sector have gone for stock splits at much higher prices. Oracle, however, has a history of executing splits with its stock price in double digits. Its last split happened when it was trading at $63 a share in October 2000.

The stock has underperformed the Nasdaq-100 Technology Sector index in the past decade. That could give management another reason to go for a split based on the belief that this move could increase the demand for its shares. But what's worth noting here is that Oracle's improving growth prospects due to artificial intelligence (AI) raising demand for its cloud infrastructure, along with its valuation, make the stock worth buying irrespective of a stock split.

Let's take a closer look at Oracle's prospects and check why the stock is capable of outperforming the broader market in the long run.

Artificial intelligence has opened up a terrific growth opportunity

Oracle made its name by providing database software, but it now has a new growth catalyst in the form of AI. Companies have been rushing to rent cloud infrastructure from Oracle so that they can train and deploy AI models. This explains why Oracle's cloud infrastructure revenue in the second quarter of fiscal 2025 (ended Nov. 30, 2024) shot up 52% year over year.

Management says it saw "record-level AI demand" that was much higher than what other hyperscale cloud infrastructure providers reported during the quarter. Chairman Larry Ellison believes that the company's ability to provide faster computing at lower costs as compared to other cloud computing companies is the reason for its growth.

Including its cloud software-as-a-service (SaaS) business, the company ended the quarter with a 24% jump in cloud revenue to $5.9 billion. It expects to end the year with $25 billion in total cloud revenue, including both infrastructure and software. And it's just scratching the surface of a huge end-market opportunity in this niche.

Goldman Sachs estimates the cloud infrastructure-as-a-service (IaaS) market will generate $580 billion in revenue in 2030. Cloud SaaS is expected to hit $780 billion in revenue by the end of the decade.

Oracle, therefore, has massive room for growth in its cloud revenue over the next five years. More importantly, it seems to be on its way to making the most of this opportunity.

That's evident from the terrific growth in the company's remaining performance obligations (RPO), a metric that refers to the total value of Oracle's contracts that will be fulfilled in the future. It reported a 50% year-over-year jump in this metric in the previous quarter to $97 billion, which was much faster than the 9% growth in its overall revenue.

The faster growth of the RPO means that Oracle is signing more contracts than it is fulfilling right now, and that's likely to translate into stronger growth. This explains why the company expects its top line to grow by 12% in the next fiscal year following a 10% increase in the current one. Even better, management expects its top line to hit $104 billion in fiscal 2029, which would be nearly double fiscal 2024 levels.

Meanwhile, it expects earnings to rise in excess of 20% through fiscal 2029. Using the fiscal 2024 earnings of $5.56 per share as the base, its bottom line could hit $13.83 per share after five years assuming an annual growth rate of 20%. Multiplying the projected earnings after five years with the Nasdaq-100 index's forward earnings multiple of 27 (using the index as a proxy for tech stocks) points toward a stock price of $373.

That would be more than double the current stock price. Given that Oracle is trading at a forward earnings multiple of 24 right now, investors are getting a good deal on this AI stock that they may not want to miss.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Oracle. The Motley Fool has a disclosure policy.