NEW YORK -- Oracle Corp. (ORCL) shares rose 8% Thursday, after the software provider posted second-quarter earnings that beat analysts' expectations, suggesting database-software spending has stabilized. But some market observers said upside is already priced into the stock. "We have little doubt the business is improving," said Needham analyst Richard Davis, who downgraded his investment rating on the stock to hold from buy. "But unless you want to make a case that the company is going to trade significantly above 20 to 25 times forward earnings, you don't have a lot of upside." Davis sees Oracle earning between 50 and 55 cents a share in 2004, which implies a one-year target price of $11.60. "Stock valuation doesn't give much upside from here," Davis said. He doesn't own the shares, and Needham doesn't do banking business with Oracle. Shares of Oracle recently traded up 3.7%, or 40 cents, to $11.03, off an earlier high of $11.57. Volume was 61 million, compared with the stock's average daily volume of 49.4 million shares. Oracle reported fiscal second-quarter net income of $534.9 million, or 10 cents a share, compared with earnings of $549.5 million, or 10 cents, a year ago. Revenue fell 3% to $2.31 billion - the seventh consecutive quarter of declining sales. The consensus forecast called for net income to fall 20% to 8 cents a share and revenue was expected to decline 6% to $2.22 billion. Robert Breza, an analyst at A.G. Edwards, upgraded his investment rating of the stock to buy from hold, citing management's third-quarter earnings expectation of between 9 cents and 10 cents a share, he said. Analysts polled by Thomson First Call see Oracle earning 9 cents a share in its fiscal third-quarter, which is what the company posted in the third quarter of fiscal 2002. "We think EPS estimates are less likely to get cut and more likely to get raised," said Breza, who sees Oracle stock trading at $15 in one year. "Fundamentals are improving. The rate of decline of overall revenue has slowed." After losing ground in previous quarters to cheaper offerings from rivals Microsoft Corp. (MSFT) and International Business Machines Corp. (IBM), Oracle's flagship database revenue was flat in the second quarter. Most analysts had expected Oracle's database revenue to decline 12% or more. Breza doesn't own shares of Oracle, and A.G. Edwards doesn't have an investment-banking relationship with the company. "Oracle's road to recovery will be long and challenging in light of competitive pressures," added SG Cowen analyst Drew Brosseau in a research note. "Still, the company's solid results provide further evidence that software spending has stabilized and is starting to improve." Brosseau rates Oracle at market perform and doesn't own the shares. Disclosures in his research report said readers should assume that SG Cowen intends to provide investment-banking services to Oracle in the next three months.