Oracle: Welcome to the GAMMATON Club

Markets are continually full of surprises, and we got a whopper last night.  Investors were awaiting earnings from Oracle (ORCL), and at first blush the EPS miss failed to impress.  But if we needed a reminder of our contention that corporate guidance is by far the most important factor for a stock’s performance, we got one in spades from ORCL.  Remember, quarterly reports are backwards looking but markets are relentlessly looking towards the future.  And ORCL’s leap means it might be time for a new market acronym.

Quite frankly, I can’t remember the market completely repricing a company anywhere close to ORCL’s size this quickly – at least not in a positive way.  But if management’s belief that cloud revenues will rise from $10.3 billion to $144 billion in five years is achievable – meaning just under 14X growth, or roughly 70% compounded per annum over that period — then the stock is certainly due the sort of positive reassessment that it is getting today.  If we’d gotten this sort of prediction from a less established company, then investors might be able to shrug it off as either a lie or a misplaced digit.  Instead, this is from a blue-chip company with proven, well-respected management.  The guidance is beyond stunning.  Who cares that Q1 EPS missed by a penny?

Revised expectations of this magnitude force us to reevaluate our thinking about spending related to artificial intelligence.  I’ve had several recent conversations – particularly after Nvidia’s (NVDA) latest earnings report — about whether there would be a natural plateauing of AI-related expenditures as end users focused less upon simply acquiring and building out AI projects and more on profitably utilizing the new technology.  That has been the case throughout history as new technologies were invented and adopted.  It was certainly the case with the internet.  The technology was perhaps even more transformative than its early evangelists expected, but the implementation hardly occurred overnight.  ORCL clearly believes otherwise! 

Some of you might be wondering why the Nasdaq 100 (NDX), the index usually described as “tech heavy”, is not performing even better than its roughly 0.3% rise.  Here’s something I’d forgotten – ORCL is listed on the NYSE, not Nasdaq!  Hence, it can’t be included in NDX.  There are plenty of other tech winners in NDX, such as Broadcom (AVGO, +9%) and NVDA, (+4%), but it is not benefitting directly from ORCL’s gain and is being subdued by the now typical “sell the news” reaction to Apple’s (AAPL, -3%) latest product launch.  ORCL is a key reason why the S&P 500 (SPX, +0.4%) is outpacing NDX, despite the enthusiasm in many technology shares.

Today’s giant leap in ORCL pushes it into rarefied air.  It came into the day as the US company with the 19th highest market capitalization (after combining Alphabet’s GOOG + GOOGL).  It is now in the #10 slot with a market cap of about $950 billion just behind Berkshire Hathaway (BRK.B), having surpassed JPMorgan (JPM), Eli Lilly (LLY), Visa (V) and others.  ORCL must now be considered a key bellwether for the key sector that has driven the bull market for the past 3 years.  (Remember, the rally began in November 2022, which was also when ChatGPT was released.  Coincidence?  I think not.)

As a result, it seems like it’s time for a new acronym.  I’ve long advocated for AVGO to get some love as a member in good standing of the “Magnificent 7”, especially now that it is larger than Tesla (TSLA), and floated the idea of a “Great 8” to replace the current construct.  Quite frankly, I haven’t been able to come up with a catchy phrase involving the word “nine” even as a devoted baseball fan.  Instead, I’ll suggest a reversion to an acronym, like our former friend “FAANG”. 

How about “GAMMATON” (Google, Apple, Microsoft, Meta, Amazon, Tesla, Oracle, Nvidia)?  Those who were long gamma in ORCL options must be in favor of that idea.  It sounds both (options) market related and explosive, even if it is nonsensical. 

I’ll let that suggestion percolate.  But the need to consider ORCL among the key megacap technology stocks is anything but nonsensical.  They placed themselves firmly in the market’s viewfinder when it comes to all things AI.