NEW YORK ( TheStreet) -- Oracle (ORCL - Get Report) will announce earnings next Wednesday and analysts are expecting big things, possibly a substantial beat on the consensus earnings estimate of 66 cents/share.
There are two reasons for this. One is a belief that companies have finally loosened the corporate purse strings and would rather buy technology than hire new people.
The other is a misunderstanding of cloud.
As Chris Ciaccia wrote Wednesday, Canaccord Genuity analyst Richard Davis has raised his rating on the stock to a buy with a $42/share target. The stock closed at $35.58/share on Wednesday. Davis said that the below-market PE multiple of 11 was unjustified, and that combined with an advance of about 10% on earnings would lead to a 20% rise in the stock.That's simple math. If you have a track record of beating on the number and growth in the sector looks strong, you'd expect a little acceleration in the multiple investors pay for earnings. But another reason for optimism, as Michael Hickins of The Wall Street Journal "CIO" blog wrote, is growing acceptance of "cloud," or at least Oracle's view of cloud. Oracle doubled down on that view Wednesday, acquiring privately held Nimbula, a provider of private cloud operating systems launched by Amazon.com (AMZN - Get Report) veterans, for an undisclosed price. Redmonk co-founder James Governor tweeted after the announcement that "the eye of Sauron turns upon OpenStack," the open source cloud infrastructure Nimbula had been supporting. He added that Oracle is responding here to IBM (IBM - Get Report) and its cloud moves, not trying to take over the open source software IBM now supports. While cloud technology is designed to lead to lower costs, using commodity hardware and open software, Oracle's cloud is quite different, being based exclusively on its own hardware and applications. The joke is it's a sort of "get off my lawn" cloud. Cloud advocates build systems from an infrastructure, then create a platform for writing applications and finally deliver software services. That's how most cloud stacks work. Oracle's cloud works the other way, with software -- specifically Oracle database applications -- as central, and the rest of the stack completely controlled by the vendor. This is convenient for CIOs who have made their operations dependent on Oracle's databases, and the applications arising from them. They can tell their bosses they bought cloud, while maintaining dependence on the same vendor they've used for years. Given the complexity of database applications, and corporate dependence on them, Oracle has a unique opportunity to maintain this customer lock-in, even while paying lip service to cloud ideals.
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