The real story behind Oracle’s 7% stock slide and AI optimism

Oracle shares dropped 7% in after-hours trading following disappointing fiscal second-quarter results that missed analysts’ expectations. The database software company reported adjusted earnings per share of $1.47, slightly below the projected $1.48, on revenues of $14.06 billion, which also fell short of the $14.1 billion forecast.

Oracle’s fiscal second-quarter sales grew by 9% year-over-year. Net income surged 26%, reaching $3.15 billion, or $1.10 per share, up from $2.5 billion, or 89 cents per share, a year earlier. Notably, the company’s cloud services revenue increased by 12% from last year, totaling $10.81 billion, which accounted for 77% of total revenues.

Oracle highlighted strong performance in its cloud infrastructure sector, where revenue soared by 52% year-over-year to $2.4 billion. This area has become a significant growth driver as enterprises transition their data workloads away from traditional data centers. In his statement, Oracle founder Larry Ellison emphasized the company’s strong positioning in the AI market, stating, “Oracle Cloud Infrastructure trains several of the world’s most important generative AI models because we are faster and less expensive than other clouds.”

Tapping into increasing demand for computing power, Oracle recently signed an agreement with Meta to use its infrastructure for projects associated with the Llama family of large language models. CEO Safra Catz described the demand for AI as “record-level,” asserting that Oracle’s cloud infrastructure outpaced that of its hyperscale competitors.

In terms of customer commitments, Oracle reported a 50% growth in remaining performance obligations (RPO), bringing the total to $97 billion. Catz noted that despite the current quarter’s challenges, this figure indicates that growth rates may continue to rise.

For the forthcoming quarter, Oracle projected revenue growth between 7% and 9%. At the midpoint of this guidance, revenue would approximate $14.3 billion, which is less than the $14.65 billion analysts expected. The company anticipates adjusted earnings of $1.50 to $1.54 per share, whereas analysts had predicted $1.57.

In September, Oracle had raised its fiscal 2026 revenue guidance to $66 billion, approximately $1.5 billion above analyst expectations. The company also announced its cloud unit would begin taking orders for computing clusters powered by over 131,000 Nvidia “Blackwell” GPUs, designed for training AI models.

Despite Monday’s stock decline, Oracle has seen substantial gains in 2023, with shares rising over 80% year-to-date, marking the most successful year for the stock since 1999. Though the recent dip reflects investor caution following less stellar earnings, the strong growth in the AI segment and Oracle’s cloud capabilities suggest ongoing potential.

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Featured image credit: Oracle