Oracle (NASDAQ: ORCL) experienced a notable 10.4% decline in its shares on Tuesday, driven by another quarter of lackluster cloud sales and a pessimistic forecast that sparked concerns about the growth trajectory of a business poised to capitalize on the rise of generative AI.
The cloud infrastructure division at Oracle, competing with industry giants like Amazon Web Services and Microsoft Azure, has seen a significant slowdown in revenue growth over the past three quarters. Analysts at Barclays expressed worry, stating, “The lower OCI (Oracle Cloud Infrastructure) growth will worry investors as this is the main investment story.”
Despite Oracle’s shares having risen by 40% throughout the year, fueled by investor optimism around the growing adoption of generative AI technology, including the popular ChatGPT chatbot, the current setback puts the company at risk of losing approximately $33 billion in market capitalization, with shares trading at $103.14.
Oracle attributed the weak results to supply constraints, with CEO Safra Catz acknowledging that demand for the company’s generative AI and cloud infrastructure services was rising at an “astronomical rate.” However, analysts remained skeptical about the company’s outlook, leading at least four brokerages to lower their price targets on the stock after the results.
Piper Sandler, a brokerage firm, expressed reservations, noting, “Two consecutive quarters of cloud revenue shortfalls partially erode our confidence that a cloud transition can drive a sustainable top-line growth recovery.”
In the second quarter ending Nov. 30, Oracle reported a 25% increase in total cloud revenue, encompassing software, falling short of the company’s expectations for a 29%-31% rise. Contributing factors to the disappointing results included weaker enterprise spending and fierce competition from larger industry players.
Oracle’s third-quarter revenue growth forecast, which includes the health data software platform Cerner, ranged between 6% and 8%. However, the mid-point of this forecast fell below analysts’ average estimate, hovering around 7.6%, according to LSEG data. These developments raise concerns about Oracle’s ability to sustain robust top-line growth in the face of evolving market dynamics and intensifying competition.
