Oracle stock has taken a hit from news about artificial intelligence. This is probably the wrong reaction.
All the recent news shows investors that the AI business is booming and Oracle is just fine. But including a 0.5% gain to $141.44 early Wednesday, shares are down about 3% from Tuesday's highs. gave
S&P 500
And
Dow Jones Industrial Average
They were 0.2% and flat, respectively, in Wednesday's trading.
The stock rose early on Tuesday, after Oracle and Palantir said the latter's Foundry platform and artificial intelligence platform are available on Oracle's cloud-based AI infrastructure. This represents a more AI-driven business for Oracle.
But then came news that xAI, Elon Musk's AI business, would handle some of the computing it needs for AI in-house. Musk explained that xAI needed to move quickly and control some of the servers it uses for Grok, a large language model similar to OpenAI's ChatGPT.
This triggered a stock drop. However, both bits of news show that the AI business is booming and that there isn't enough AI computing capacity to keep up with the increase in demand.
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xAI uses Oracle's AI infrastructure. It would have more use if it could, but Oracle is serving the likes of xAI, Palantir, OpenAI, and others.
Jefferies analyst Brent Thill pointed out in a report Tuesday that the xAI deal was not reflected in Oracle's financial guidance — meaning there is no risk of quarterly revenue from any business being lost — and that the company now AI services are also seeing incredibly strong demand. .
He rates Oracle stock at Buy and has a $150 price target. Thill estimates its sales will total $65 billion in fiscal 2026, up from $53 billion in projected 2024 sales. (Oracle's fiscal year ends in May.)
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It's easy to see further growth for AI computing. OpenAI and Grok are public AI models, but this is just the beginning. Eventually, corporations will train AI models with their private data – working to make their operations more efficient and better for their customers. That would mean more business for Oracle and others.
If the AI computing competition were a baseball game, it would still be in the very early innings. The news about both Palantir and xAI illustrates this.
Much of the AI infrastructure is running on Nvidia chips, making the company a big winner in all of this. It's no secret: Nvidia stock is up 3,100% over the past five years.
Write to Al Root at allen.root@dowjones.com.