Oracle Corporation (ORCL) witnessed a significant downturn in its stock prices, plummeting by as much as 13% on Tuesday, following a fiscal first-quarter (Q1)earnings report for 2024 that failed to meet investor expectations. The enterprise software giant’s revenue narrowly missed Wall Street’s estimates, and its guidance fell short of ideal projections.
Analysts expressed their disappointment as Oracle struggled to capitalize on the burgeoning wave of artificial intelligence. Derrick Wood, an examiner at Cowen, noted, “Expectations were high, and while we thought this was a solid cloud number, there was no upside to [Oracle cloud infrastructure] and it wasn’t the cleanest overall quarter, and the lower 2Q guide was surprising.”
Oracle’s cloud sales growth also lagged behind competitors such as Microsoft (MSFT) and Amazon (AMZN). During the earnings call, Oracle’s Chief Technology Officer, Executive Chairman, and Co-founder Larry Ellison voiced optimism about the potential of generative AI, stating, “Is generative AI the most important new computer technology ever? Maybe, we’re about to find out. As of today, AI development companies have signed contracts to purchase more than $4 billion of AI training capacity in Oracle’s Generation 2 Cloud. That’s twice as much AI training as we have booked at the end of the last Q4.”
In addition to grappling with disappointing Q1 earnings, Oracle is in the midst of integrating its monumental $28.2 billion acquisition of electronic medical records company Cerner, which concluded in June 2022. This endeavor has brought its own set of challenges, according to JMP Securities analyst Patrick Walravens, who stated, “In terms of challenges, Oracle faces an uncertain macroeconomic environment, is seeing ‘some near-term headwinds to the Cerner growth rate,’ and needs to balance its CapEx spending against its need to generate free cash flow and service its $89 billion in debt.”
Despite the setback, Oracle still retains potential for recovery. Walravens optimistically highlighted Oracle’s “outsized growth in its [infrastructure-as-a-service] business, which grew 66% year-over-year, ‘has far more demand than we can fulfill,’ and which is benefiting from Chairman Larry Ellison’s prescient investment in OCI Gen 2 and Nvidia chips.”
Leading up to the earnings report, Oracle shares had experienced a notable 56% year-to-date increase. It appears that investors had placed too much emphasis on the potential of AI, as noted by Stifel’s Brad Reback, who pointed out that Oracle presented “top-line results roughly in-line with Street estimates, but it is clear that investors were pricing in more AI and cloud-related upside.”
The path to recovery for Oracle remains uncertain. Investors closely monitoring the tech giant are advised to pay keen attention to its integration of Cerner, as well as Larry Ellison’s ambitious investments and commitments in generative AI.
Source: Yahoo finance