Oracle’s Booming Cloud Infrastructure Business Will Soon Surpass Cloud Apps Revenue

While Oracle’s been in the apps business for more than 20 years and has been a player in the software-as-a-service (SaaS) market for the past 12 years, the company’s surging cloud-infrastructure business will likely become larger than the cloud-apps business by the end of 2024.

Until about 18 months ago, Oracle’s claims to be a full-fledged player in both of those major cloud categories had to be taken with a grain — or perhaps a block — of salt. While its cloud-apps business had achieved an annualized run rate of close to $2 billion at that time, it’s cloud-infrastructure business back then was miniscule.

But the numbers for Oracle’s fiscal first quarter tell a very different story about the volume and velocity of those two parts of the Oracle cloud business:

• the hypergrowth infrastructure business grew 66% in Q1 to $1.5 billion;
• setting aside Oracle’s legacy hosting business, that growth rate climbs to 72% on quarterly revenue of $1.4 billion;
• but the growth of Oracle’s SaaS business slid to 17% for Q1, with revenue reaching $3.1 billion. (For more on that, please see “Oracle Q1: Despite Market-Cap Thrashing, Cloud Growth Still Surging.”)

If we look at Oracle’s cloud-apps growth rate over the past five quarters, we see a sharp decline starting with Q1 of fiscal 2023 and running forward through Q1 of fiscal 2024: 43%, 40%, 42%, 45%, and then 17% in this most-recent quarter. A huge factor in that big decline is that Cerner’s been part of Oracle for more than a year, so the comparative numbers now incorporate Cerner’s contributions.

Chairman Larry Ellison used the Q1 earnings call to highlight some major progress on the apps side. In his prepared remarks, Ellison said, “Our cloud applications business is doing quite well, and it’s about to get even better. In the current quarter, we expect our Cerner health business to be awarded two large new contracts with a total value of over $1 billion.

“And I’m now able to announce that all nine utility companies owned by Berkshire Hathaway are in the process of replacing all their existing ERP systems and standardizing on Oracle Fusion cloud applications.”

However, that 17% SaaS growth rate for Q1 means that Oracle’s cloud-infrastructure is growing 4X as fast. And while today the company’s apps business is twice as big as its infrastruture-as-a-Service IaaS business — $3.1 billion to $1.5 billion — the wildly different growth rates tell us that the trend lines will be crossing fairly soon as the cloud-infrastructure business will, I believe, become the largest part of Oracle’s cloud business by the end of calendar 2024.

Ellison devoted most of his time on the call to talking about the huge wins Oracle’s cloud-infrastructure business is having with artificial intelligence (AI) companies, both some of the largest in the world as well as high-growth startups. And Oracle shared these details about where that big-time IaaS growth is coming from:

• Total infrastructure cloud services revenue was up 66% to $1.5 billion;
• excluding legacy hosting services, Gen 2 infrastructure cloud services revenue grew 72% to $1.4 billion;
• OCI consumption revenue was up 91%;
• Exadata Cloud Services revenue was up 46%;
• Autonomous Database was up 42%; and
• cloud-database services rose 44%.

Catz added this perspective on Oracle’s cloud-database services: “Very importantly, as on-premise databases migrate to the cloud, we expect these cloud database services will be the third leg of revenue growth alongside strategic SaaS and Gen 2 OCI cloud services.”

Final Thought

As Oracle moves into a future where the fastest-growing part of its $50-billion-plus business revolves around hardware, it’s ironic to consider the roots of ascendancy. Twelve years ago, as most big IT vendors were rushing to get out of the hardware business, Ellison spent about $7 billion to get into that category via the acquisition of Sun.

And today we see the company best known for its database and application software morphing into a cloud juggernaut in large part on the hypergrowth of its hardware-centric infrastructure capabilities.

After all, in the Cloud Wars, all things are possible!

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