Technology stocks have outpaced the broader markets by a significant margin in the last decade. For example, the Technology ETF (XLK) has returned 654% while the S&P 500 Index is up 376% since the start of 2010.

Further, a report from Statista indicates worldwide enterprise software spending rose from $225 billion in 2009 to $605 billion in 2021. Enterprise IT spending is forecast to touch $752 billion by 2023, making companies such as Oracle (ORCL) and SAP (SAP) top bets right now.

While Oracle stock has surged 275% since 2010, SAP stock has gained 177% in this period. The two companies have trailed the broader markets in the recent past. Let’s see which of these two stocks is currently a better buy.

The bull case for Oracle stock

Oracle sales have increased marginally from $39.8 billion in fiscal 2018 to $40.5 billion in fiscal 2021 ended in May. Comparatively, its adjusted earnings per share rose by 8% annually in the last five years.

Oracle’s sales in the February quarter rose by 7% which was above the midpoint of the company’s guidance. It was also the highest organic growth rate since Oracle began its transition to the cloud. All business segments of Oracle experienced top-line growth for the first time in 10 years in fiscal Q3 of fiscal 2022.

Its cloud sales were up 26% in the last four quarters at $11.2 billion. The company’s management now expects cloud sales to grow around 25% in fiscal 2022. After excluding legacy hosting services, infrastructure cloud services sales were up 60% in fiscal Q3.

While database subscription revenue was up 4%, license revenue growth also stood at 4%. Its operating expenses stood at 10% in Q4 as Oracle continues to invest heavily to meet the growing demand for cloud services.

The bull case for SAP

Similar to Oracle, SAP’s cloud sales rose by 19% year over year in 2021. Its current cloud backlog was up 26% while total sales grew by 3%. Comparatively, operating profit increased by1%, and operating cash flow and free cash flow stood at EUR 6.22 billion ($6.82 billion) and EUR 5.05 billion ($5.54 billion) respectively.

With a market cap of $128 billion, SAP is the second-largest company on the German stock exchange. It proposed an annual dividend of EUR 2.45 ($2.70) per share which was an increase of 32% year over year. 

The company aims to pay at least 40% of its after-tax profits as dividends. Its payout ratio rose to 54% in 2021, compared to 41% in 2020. After excluding the special dividend of EUR 0.50 ($0.55) per share, its payout ratio stood at 43%.

The final takeaway

Oracle is forecast to increase sales by 4.6% to $42.33 billion in 2022 and by 5.5% to $44.65 billion in 2023. Comparatively, its adjusted earnings might rise at an annual rate of 10.2% in the next five years. So, ORCL stock is valued at a forward price to sales multiple of 4.9x and a price to earnings multiple of 16x.

SAP is forecast to increase sales by 6.4% to $32.3 billion in 2022 and by 6.8% to $34.55 billion in 2023. Comparatively, its adjusted earnings might rise at an annual rate of 4% in the next five years. So, SAP stock is valued at a forward price to sales multiple of 4x and a price to earnings multiple of 22.2x.

While SAP is trading at a higher P/E multiple, the company is growing cloud sales at a far higher pace. It is poised to benefit from multiple secular tailwinds in the upcoming decade and is forecast to grow revenue at a higher rate compared to Oracle, making SAP a better stock to buy right now. 

ORCL shares were trading at $76.78 per share on Monday morning, down $1.04 (-1.34%). Year-to-date, ORCL has declined -11.63%, versus a -11.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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