3 Under-the-Radar Stocks Set to Benefit From Oracle’s Boom
On Sept. 9, one of the world’s biggest tech stocks, Oracle (NYSE: ORCL), provided key information that blew investors away. Shares closed up by 36% on Sept. 10 in reaction to the company's earnings report. Leading to the stock’s meteoric gain was the 359% rise in Oracle’s remaining performance obligations, which increased to a momentous $455 billion. Now, the company thinks it can generate $144 billion worth of cloud infrastructure revenue in fiscal year 2030. That’s eight times higher than the $18 billion in cloud infrastructure revenue it expects in fiscal year 2025.
To meet the needs of Alphabet (NASDAQ: GOOGL), Amazon.com (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) alone, Oracle is going to build an additional 37 data centers. When thinking about other stocks that can benefit from Oracle’s success, this is key. More data centers mean more purchases of everything used to make them. Below, we’ll dive into three under-the-radar stocks that could be huge winners from this.
CRDO: Building the Highways of Data Centers
First up is Credo Technology Group (NASDAQ: CRDO). One of Credo’s key product groups is active electrical cables (AEC). These cables act as a key link in the chain of connecting data center components, allowing them to talk to each other.
With Oracle's massive data center build-out, Credo could generate significant orders for its cables. Adding to this possibility is that Credo already works with hyperscalers like Microsoft and Amazon. A group of resourceful traders may have noticed Credo's potential to benefit from Oracle’s outlook. Shares also surged on Sept. 10, closing up by 10%.
Credo has seen unprecedented demand for its products recently. Revenue growth accelerated to 274% last quarter, and the figure has been above 60% for six quarters in a row. The company says the total addressable market is between $5 billion and $10 billion for AECs. With $600 million in revenue over the last 12 months, not all of which goes to AECs, Credo still has a strong opportunity to grow in this market.
AAOI: Translating Signals in Data Centers With a Hyperscale Customer on the Books
Next up is Applied Optoelectronics (NASDAQ: AAOI), a small-cap name valued at around $1.7 billion. When it comes to data centers, the company mainly sells optical transceivers. These devices essentially translate electrical signals into optical signals, allowing the transmission of information.
Data centers often use both electrical and optical transmission for different use cases. Thus, the data center can use Applied and Credo’s technology for different reasons. Applied currently sells its transceivers to a major hyperscaler customer, showing that its technology already has adoption from a massive player.
Although it is hard to say that Oracle will become a customer, the need for more data centers overall is a positive for AAOI. It's quite possible that market participants recognized this, with shares rising 17% on Sept. 10. As a small stock, Applied Optoelectronics is a riskier name, but its size also provides potential for larger upside.
COHR: Large-Cap Transceiver Name Building Connections Across Data Centers
Rounding out this group is Coherent (NYSE: COHR). Like Applied Optoelectronics, Coherent makes optical transceivers for data centers. However, AAOI generated just $103 million in total revenue last quarter. Coherent generated nearly $950 million in its data center and communications end market alone.
Clearly, Coherent is a much larger player, reducing the stock’s risk compared to AAOI in this discussion. Underscoring this dynamic is the stock’s $16 billion market capitalization and its muted 4.3% rise on Sept. 10 versus AAOI’s explosive gain. Furthermore, Coherent has multiple hyperscaler customers compared to AAOI’s single one.
Additionally, larger companies typically have the capacity to focus on a broader range of customer needs. For example, Coherent has seen strong demand for its data center interconnect (DCI) transceivers. DCI transceivers help send information between data centers that can be miles apart, rather than within one data center. That technology could be particularly important when thinking about Oracle’s expansion, as customers will likely want to send information between data centers.
CRDO, AAOI, COHR: Buildout Beneficiaries
Overall, Credo, Applied Optoelectronics, and Coherent are three stocks many investors may not know much about, but should have on their radars.
With Oracle clearly indicating that the world needs more data centers, all three names have the potential to benefit big-time over the coming years.
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