Oracle, a prominent software company, revealed on Monday that its cloud sales growth had decelerated in the latest quarter, raising concerns about the company’s expansion endeavors in the fiercely competitive market.
Cloud revenue, a pivotal metric closely monitored by investors, witnessed a 30% surge, reaching $4.6 billion for the period concluding on August 31. Notably, $1.5 billion of this total emanated from leasing computing power and storage via the internet, while $3.1 billion was attributed to applications. However, this growth rate represented a slowdown compared to the previous quarter’s impressive 54% increase.
Larry Ellison, Oracle’s Chairman, voiced his enthusiasm for the burgeoning demand propelled by Artificial Intelligence (AI), citing that companies in this sector have inked contracts for purchasing over $4 billion in capacity from Oracle’s cloud service. Investors had nurtured hopes that the surge in demand for AI products, which rely heavily on computing power, would be instrumental in Oracle’s market share expansion.
In response to the news, Oracle’s stock experienced an early trading dip to $113.80, after closing at a record high in New York. If this downturn persists, it could mark Oracle’s most substantial intraday decline since March 2020. The company reported a 9% increase in total revenue, reaching $12.5 billion, aligning with analysts’ average projections. Excluding certain items, profit per share stood at $1.19, surpassing the average estimate of $1.15.
Chief Executive Officer Safra Catz highlighted a remarkable 66% increase in revenue from the cloud infrastructure business during the fiscal first quarter, asserting that this growth outpaced their hyperscale cloud infrastructure competitors. However, Oracle’s foremost challenge remains in rapidly constructing data centers to meet surging demand.
Catz acknowledged that Oracle’s Cerner health unit might face “near term headwinds” as the company transitions customers to the cloud. Projections for the current period ending in November anticipate a total revenue increase ranging from 5% to 7%, a figure lower than the initially forecasted 8%, which amounted to $13.3 billion.
Based in Austin, Texas, Oracle, renowned for its database software, is steadfastly focused on bolstering its cloud infrastructure business to contend more robustly with industry behemoths such as Amazon.com Inc., Microsoft Corp., and Alphabet Inc.’s Google. Citigroup Inc. analyst Tyler Radke observed that Oracle’s results “appear to have fallen short of the loftier revenue expectations.”
Year to date, Oracle’s shares have experienced a commendable 55% surge. However, the deceleration in cloud sales growth and the struggle of Oracle to keep pace with escalating demand precipitated a pre-market trading decline of up to 10%. The company’s ongoing battle for market share against industry giants continues to be a focal point for investors, with Oracle’s ability to realize its cloud business scaling goals remaining uncertain.
Source: Bloomberg
