Oracle: Disrupting The Healthcare Industry With AI

seekingalpha11-23 00:57

Oracle Corporation's shares have risen 21.27%, driven by its pivotal role in AI and healthcare database solutions, making it a strong buy.Oracle Health aims to unify fragmented US healthcare databases...

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Justin Sullivan/Getty Images News  Investment Thesis Oracle Corporation (NYSE:ORCL) shares have beaten the market since the last time I wrote about the database technology giant in September, with shares up roughly 21.27% since then. This beats the market's 7.37% return. In my opinion, the key driver of this growth has been the market’s growing belief that the tech company is going to play a key role in the future of AI. Oracle has a series of unique database solutions that will help them index the vast troves of data that large language models currently wish to use. Interestingly, with this, the company’s health information technology platforms and services arm, Oracle Health, can also benefit by taking on the fragmented healthcare database crisis here in the US through their database solutions. Oracle can help merge massive datasets across multiple hospitals and medical institutions in the US. For those of you reading this (and do not live in the US) our medical databases are highly fragmented. This is a massive opportunity. Oracle founder and CTO Larry Ellison recognizes this. He’s channeling resources to help Oracle Health transform the US electronic health records (EHR) market and with it the entire $16-trillion healthcare industry. Healthcare data is one of the thorniest frontiers for tech companies due to Health Insurance Portability and Accountability Act (“HIPAA”) compliance. I am confident that Oracle will solve this, however. With it comes a unique market and a large monetization prize. It's one of the “holy grails” of tech problems to solve. Oracle is on the right track. I continue to believe shares are a strong buy. Why I'm Doing Follow-Up Coverage In my previous coverage after the last earnings report, I really honed in on how Oracle’s strong Q1 2025 performance through their 21% YoY cloud revenue growth is setting the stage for them to be the foundation of modern AI systems. Oracle is taking good advantage of the robust demand by AI companies that require new data solutions for large language model (“LLM”) training for generative AI applications. Based on their operating performance, I think there’s no denying that the company is really firing on all cylinders and happens to have a series of solutions that are perfect for the Gen AI market. Now that they are expanding into healthcare, I think this opens a new door to new upside opportunities. Investors don’t always consider Oracle to be a key healthcare company. I think this makes shares mispriced. This is a key focus and the main reason I am doing this follow-up coverage. I think healthcare is a core building block to the future of this database company. Disrupting Healthcare 2024 has been an immense year for Gen AI. In 2024 alone, Oracle has also released several healthcare initiatives. In June, they launched its Clinical Digital Assistant offering for ambulatory clinics in the country to boost doctor-patient interaction while combining generative AI with clinical intelligence and multimodal assistance. Through automated documentation processes, the company aims to reduce physician burnout. In October, the company unveiled their new EHR platform that uses their clinical AI agent, Oracle Health Data Intelligence, and voice-activated navigation and search capabilities. It will embed AI across the entire clinical workflow to offer time savings for healthcare providers and patients. At the same time, the tech giant also announced Oracle Health Payments to allow patients to pay their bills securely via card or through their smartphones with payment services such as Google Pay, Samsung Pay, and Apple Pay. The system will also automate revenue posting. Oracle’s Healthcare Talent Network, which is integrated into their Oracle Fusion Cloud Recruiting within the HCM suite, will also offer assistance to healthcare organizations by helping source talent for critical roles through a wider pool of qualified candidates. It’s intended to shorten the recruitment processes, and help identify skilled workers faster. Along with these offerings, they’ve also made a notable acquisition of Cerner. While this development is older (two years ago) they have since integrated Cerner's clinical expertise with Oracle’s enterprise platform, automation, and data analytics. As of last month's Oracle Health Summit, Ellison remains optimistic about the future of the acquisition:  Cerner itself automated a hospital, or at most, maybe a group, a small group, of hospitals. That's not what we wanted to do. All the patient data, all of my patient data, should be in a single database. If I go into two clinics, three hospitals, five laboratories, two private practice physicians, all my data is fragmented in many different places. That should never be the case. My credit data is not fragmented, even though I might bank at five different banks. That's all been unified. So we have to unify all of that healthcare data so all my data is in a single place. The story of my life, the healthcare story of my life, is in a single place. That should be the case with everyone's healthcare data. In a place like the UK, we can take all of these separate Cerner systems [and] we [have] almost completed taking all of that separate data and putting it into a single UK database. This handles some very simple, but very serious problems. It's really not a classical EHR system, in that the system itself is more it's more like a care information system. So it will look for patients with similar symptoms and similar backgrounds, whether it's a similar genomic signature, similar phenotype, all of this stuff, and it will search all the literature and all the Electronic Health Records and inform the doctor that other doctors have had success treating similar patients in the following way. So it's very close to giving care advice, which we don't do, but it will provide information to doctors, information from other doctors and recent clinical trials, and recent articles in the New England Journal of Medicine and Lancet of what seems to be a very successful set of therapeutics for people in similar circumstances.  Personally, I strongly believe that a big driver of Oracle’s earnings growth over the coming years will be their healthcare expansion. Due to AI’s disruption in many industries, the core technology has become a natural symbiotic partner to large healthcare databases (like what Oracle is building). Oracle is there to facilitate databases uniquely that Epic health, a key competitor that the company has since challenged, will not be. Epic health does not have the AI offerings underneath like Oracle does. Valuation While Oracle is going after a massive market by competing with Epic on their database solution, shares of the tech giant are trading at a slightly expensive forward non-GAAP P/E ratio of 30.33. This is 23.93% higher than the sector median’s 24.48. Offsetting this, the company has a strong growth profile over the next 12 months based on both a revenue and earnings standpoint. Oracle’s forward revenue growth is projected to come in at 9.13%, compared to the sector median of only 5.64%, or a 61.83% difference. This is running well ahead of their 5-year average forward revenue growth of 6.06%. As we see the company expand on their healthcare offerings, I really think this is boiling down to better growth. Similar to my previous coverage, I continue to believe Oracle's growth potential justifies the tech firm carrying a forward P/E ratio above the sector median. With this, I actually believe shares should trade closer to 35 times forward earnings. I believe the tech company has a strong upside that is yet to be realized, especially through healthcare. If shares were to converge on a forward P/E of 35, this would represent a 15.4% upside. Risks Oracle is known as a database company because they offer database solutions to so many end customers. With different end customers come different use cases. One of the biggest risks for Oracle is the fact that the company faces a series of niche competitors in each of the use cases that they service. For instance, their main EHR competitor Epic Systems claims to have 190 million patients globally and their solutions are used by 2,700 hospitals. For Epic, the company is pursuing a series of AI projects in an attempt to catch up with Oracle’s AI lead. In August, it announced that it is planning to add over 100 new AI features that can benefit doctors and patients, on top of introducing insurance claim submission automation and a new scheduling application for medical personnel. Epic also announced a big change to their EHR system this year by announcing they are moving their customers to the Trusted Exchange Framework and Common Agreement (TEFCA), a government-backed medical records exchange network. For Oracle, this niche competition holds true on the database side, with companies like Pinecone sporting massive funding rounds pushing their valuation up to $750 million. To help Oracle compete with each use case, I think it's helpful to look at what makes them so valuable in the first place: it's the fact that their database architecture is versatile and built for the world of AI. The company has a near seamless portfolio of offerings that I think in an era of connected applications make Oracle's ecosystem increasingly competitive against niche competitors. Bottom Line While known as an enterprise database company, Oracle is making considerable strides in the healthcare industry. By leveraging their expertise in AI and cloud, the company is well-positioned to revolutionize healthcare systems, improve patient care, and streamline operations. The company’s plan to dominate includes developing more advanced EHR platforms, integrating AI-powered proprietary clinical tools, and enhancing data security. While Oracle faces competition from established niche players like Epic Systems, Oracle's strong technological expertise puts them in a good spot. They have the strongest core technology in my opinion. As the industry continues to evolve, Oracle's suite of healthcare solutions and their relentless focus on customer success makes them a compelling choice for healthcare organizations. I’m optimistic about growth.  With this, I think Oracle shares continue to be a strong buy. Personally, I believe the company's strong financial performance, coupled with its strategic investments in healthcare and AI, puts them on a great path for sustained growth and long-term value creation for shareholders. They appear to be at the intersection of two of the biggest trends of the modern economy. That’s an excellent place to be.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485429950"}