Cloud computing plays remain hot. But it’s only been this year that Oracle (NYSE:ORCL) stock has joined their ranks. Back in 2020, when cloud names like Microsoft (NASDAQ:MSFT) were zooming higher, shares in this enterprise software giant saw more gradual gains. Mainly, due to it facing more challenges than windfalls from the Covid-19 pandemic.

Yet so far this year, it’s finally caught some of the cloud-related tailwinds. Thanks to its initial success ramping up its cloud infrastructure segment, shares are up around 38% year-to-date. So, will this continue? It depends. Oracle’s earnings growth appears set to speed back up, thanks to the cloud catalyst, investors may have more reason to give it a higher valuation. Especially as relative to peers, the stock appears reasonably priced.

Earnings re-acceleration may be on the menu. Yet it may not be enough to justify an even higher valuation. Analyst consensus calls for earnings growth to be basically flat this fiscal year (ending May 2022), although earnings projections for the fiscal year ending May 2023 just make it into the double-digits (10.95%).

Also, there’s the issue with possible multiple compression down the road, if interest rates rise. It may not affect this stock as much as its more richly-priced peers. But it could prevent it from rallying much further above today’s levels (around $90 per share).

ORCL Stock and its Cloud Catalyst

Throughout last year, we heard plenty about the respective cloud catalysts at play with names like Amazon (NASDAQ:AMZN) and Microsoft. It’s only been starting this year that investors have included Oracle as a name that too could benefit from this trend.

According to Statista, Amazon’s AWS cloud infrastructure platform remains the top name in the space ,with 32% of worldwide market share. Microsoft’s Azure remains the second largest, with 20% market share. Where does Oracle’s platform rank? Far down the list, as the eighth-largest provider, with just 2% of the overall market.

It may still be far behind. But as InvestorPlace’s Louis Navellier recently broke it down, cloud infrastructure is an area that can really move the needle for ORCL stock. If it continues to succeed expanding this part of its business? The company may be able to meet or exceed investor expectations, if its rate of earnings growth increases.

In turn, this could mean further expansion of its forward earnings multiple. Or will it? Investors may have discounted this stock too much in the past. Yet after its surge, it may be running out of runway.

Why Shares May Have Limited Room to Run Going Forward

Even with its year-to-date run-up, ORCL stock is still more reasonably-priced than comparable big tech names. Currently, shares trade at a forward price-to-earnings (P/E) multiple of 19.4x. That’s much lower than the 33x forward earnings multiple Microsoft commands.

With the possibility that Oracle delivers on increasing its rate of earnings growth in the quarters ahead, some may believe this could further boost shares. Perhaps up to a valuation on par with Microsoft. Or, on par with Google parent Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), a top-ranked cloud infrastructure player itself, which trades for a forward P/E of 27.3x. However, there may be two factors that prevent the stock from experiencing any more multiple expansion.

First, earnings growth (or the lack thereof) in the upcoming quarters may reduce the stock’s near-term potential runway. Again, analyst consensus calls for earnings to be basically flat, with average estimates projecting earnings per share (EPS) declines of around 1.2% year-over-year. Even if it hits the top end of estimates ($4.94 per share), that’s still only earnings growth in the mid single-digit territory. Hardly enough to justify valuing this stock at a 25x-30x forward multiple.

Second, the possible valuation contraction that may lie ahead could put limits on gains going forward as well. Investors are starting to get jittery about possible changes to U.S. Federal Reserve policy. If today’s so-called “transitory inflation” lasts longer than expected? The Fed may have to speed up its timeline for raising interest rates even more. This could put downward pressure on richly-priced tech stocks. How does this impact ORCL stock? With its more modest valuation, it may not see much downside risk from this playing out. Yet at the very least, it too could limit its runway.

Things are Looking Up—But From Here Oracle Could Plateau

It may be making the right moves pivoting to the cloud. Subsequent success may enable it to get back into growth mode once again. Investors have rewarded it with a higher valuation so far this year. Its forward multiple still lags behind comparable names. But that doesn’t mean the stock has more room to run.

As two factors point to it possibly trading flat from here, if you buy ORCL stock today, it may be a while before it levels up once again.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.