Oracle Corporation witnessed a significant downturn in its shares, plummeting more than 12% on Tuesday following the release of its fiscal second-quarter earnings report on Monday evening. Despite posting adjusted earnings per share of $1.34, slightly surpassing the LSEG (formerly Refinitiv) estimate of $1.32, Oracle’s revenue fell short of expectations. The company’s revenue for the quarter was reported at $12.94 billion, missing the projected figure of $13.05 billion. This shortfall in revenue triggered a negative response from the market, prompting a substantial decline in Oracle stock value.
Analysts Attribute Decline to Cloud Revenue Shortfall
Industry analysts are attributing the decline in Oracle stock value to a notable shortfall in cloud revenue, a pattern observed for the second consecutive quarter. Wall Street analysts, including those from UBS and JPMorgan, highlighted Oracle’s failure to meet expectations in Cloud/OCI (Oracle Cloud Infrastructure) growth. UBS analysts expressed disappointment in Oracle’s explanation, as the company again attributed the underperformance to the pace of infrastructure capacity build-outs. The lack of clarity on the delays in infrastructure development has raised concerns among investors, making it challenging to ascertain the reasons behind the slower-than-expected growth in Oracle’s cloud segment.
JPMorgan analysts expressed apprehension regarding Oracle’s capacity to rapidly expand its Oracle Cloud Infrastructure. While there is apparent demand for OCI, the analysts raised questions about Oracle’s ability to build modern data center capacity swiftly enough to meet this demand. The analysts pointed out that capacity limitations could hinder Oracle from capitalizing on the “unlimited demand” for its infrastructure, a scenario that could impact the company’s long-term growth potential.
Mixed Analyst Sentiment and Oracle’s Strategic Position
Despite the disappointing earnings report and the subsequent market reaction, not all analysts share a pessimistic view of Oracle’s prospects. Deutsche Bank analysts, while acknowledging the Oracle stock slide, maintained a bullish stance on Oracle. They retained their buy rating, citing optimism derived from two approximately $1 billion deals announced by Oracle co-founder Larry Ellison, robust demand, and the company’s commitment to achieving over 50% OCI growth for the coming years at an increasing scale.
Oracle’s strategic position as a major purchaser of high-powered graphics processing units from Nvidia and central processor units from AMD and Ampere also contributes to its resilience in the tech industry. Additionally, partnerships with tech giants like Microsoft, providing customers access to Microsoft’s Azure cloud service, remain crucial aspects of Oracle’s broader market strategy. As the market digests Oracle’s Q2 earnings, the company’s ability to address cloud revenue challenges and accelerate infrastructure capacity build-outs will likely play a pivotal role in determining its future performance.
