Oracle earnings: Positioning for possible upside with options

Key points:

• Oracle reports earnings on March 10: Analysts expect Oracle's Q3 FY2025 earnings to show an 8% YoY revenue growth to $14.4 billion and a 6% increase in EPS to $1.49. Key factors to watch include the transition of customers to cloud and AI services, AI monetization, and updates on the Stargate AI initiative.
• Guidance for Q4 FY25 will be key: Investors will be looking for guidance on AI services growth in Q4 as that is key to meet full year guidance of double-digit revenue growth.
• Synthetic long strategy: For investors looking to gain exposure to Oracle's potential upside without buying the stock outright, a synthetic long position can be an effective strategy. This involves buying a $155 call and selling a $155 put with the same expiration, allowing for upside participation with a lower initial investment.

Oracle (ORCL) is set to report its fiscal Q3 2025 earnings on Monday, March 10, 2025 after market close. The stock has declined 7% year-to-date (YTD) but remains up approximately 35% over the past 12 months. Broader tech sector weakness, competitive concerns following China’s launch of DeepSeek and other AI models, and tariff threats have pressured valuations ahead of the report.

Market expectations for Q3 earnings

Analysts have set high expectations for Oracle’s Q3 results:

• Revenue growth: +8% YoY to $14.4 billion
• EPS growth: +5.7% YoY to $1.49 (vs. +9.7% in Q2)
• Average implied 1-day move: 9%

Key factors to watch

Customer transition to cloud and AI services

Oracle continues to shift its enterprise customer base from legacy database software to cloud-based and AI-driven solutions. As a result, Oracle’s cloud growth is catching up as a viable alternative to the three hyperscalers – Amazon Web Services, Microsoft and Google. However, Oracle has only mentioned the new, larger customer deals briefly earlier. Investors may be looking for more substantial updates on customer adoption rates and contract wins, and any such details could drive positive momentum in the stock.

AI monetization and infrastructure growth

A primary focal point will be Oracle’s ability to meet expectations for Infrastructure-as-a-Service (IaaS) revenue growth, as this is key for Oracle to achieve its double-digit revenue growth guidance for full year. Analysts expect 56% IaaS revenue growth in Q4 on a constant currency basis. This segment is a key growth driver, and any commentary around AI infrastructure monetization strategies could significantly influence the stock’s post-earnings reaction.

Update on Stargate AI initiative

Oracle’s involvement in the up-to-$500 billion AI infrastructure project, Stargate, a JV with SoftBank and OpenAI, could be a major talking point. Any new details regarding its scale, execution timeline, and Oracle’s financial commitment may outweigh other earnings details in the eyes of investors.

Capital expenditures and free cash flow outlook

Oracle is expected to increase capital expenditures by nearly 30% this fiscal year to support its cloud and AI ambitions. This could be a key focus, especially after DeepSeek’s claims to bring AI models at a fraction of the cost that US tech players have been spending. While this investment is necessary for long-term growth, it may pressure short-term free cash flow. Investors will be looking for guidance on when spending may taper off and how free cash flow could rebound in later years.

Foreign exchange headwinds

Over 40% of Oracle’s revenue comes from international markets. A strong U.S. dollar could negatively impact reported earnings by reducing the dollar value of foreign sales. Investors will be closely watching whether currency fluctuations present a meaningful drag on results, but these are likely to be considered a tactical interference with US dollar on a bearish trend now easing concerns about its impact on earnings in Q4.

Using a synthetic long for bullish exposure

For investors looking to gain exposure to Oracle’s potential upside after earnings without buying the stock outright, a synthetic long position can be an effective strategy.

Synthetic long setup (Example strategy at $155 current price)

• Buy the $155 call expiring in 1-2 months
• Sell the $155 put with the same expiration
• Objective: Replicate stock ownership with less capital upfront

Outcome Scenarios

1. Stock rises above $155 (profitable trade): If Oracle rises above $155, the call option gains value while the short put expires worthless. This mimics the effect of holding the stock and allows for upside participation with a lower initial investment.
2. Stock stays around $155 (minimal impact): If Oracle remains near $155 by expiration, the position remains largely unchanged, with minor gains or losses depending on time decay and implied volatility changes.
3. Stock declines below $155 (potential obligation to buy): If Oracle drops, the call option loses value while the short put could result in the obligation to buy shares at $155. This is similar to stock ownership, meaning the trader should be willing to take on the stock if assigned.