A Roaring Rally in Oracle's Stock Cools as Its Latest Results Fail to Meet Expectations

After an impressive 81% gain in Oracle Corp.'s stock this year, the company faced a reality check yesterday in extended trading, as a lackluster earnings report weighed on investor sentiment.

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Oracle reported $14.06 billion in revenue for its fiscal second quarter, falling just short of the $14.12 billion analysts polled by FactSet had anticipated. While the revenue gap might seem narrow, it disappointed investors who had grown optimistic due to Oracle's significant rally, fueled by excitement around its cloud computing partnerships and the broader momentum in artificial intelligence (AI).

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As a result, Oracle's stock dropped more than 7% in after-hours trading yesterday Monday.

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Despite the revenue miss, Oracle's leadership remained upbeat about its prospects in the AI space. In the company’s press release, Chief Executive Safra Catz highlighted “record-level AI demand” that contributed to a 52% growth in Oracle Cloud Infrastructure (OCI) revenue.

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Catz emphasized that this growth rate outpaced those of major hyperscale cloud competitors. "Growth in the AI segment of our Infrastructure business was extraordinary," she said, noting that GPU (graphics processing unit) consumption surged by 336% during the quarter.

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Catz also pointed to a 50% increase in remaining performance obligations (RPOs), which reached $97 billion, as evidence of Oracle’s strong growth trajectory. “Our already impressive growth rates will continue to climb even higher,” she stated confidently.

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While the AI-driven OCI growth and RPO numbers were noteworthy, some analysts expressed tempered enthusiasm. Kirk Materne of Evercore ISI remarked that the after-hours stock pullback was "not super surprising." He described Oracle’s quarter as solid but lacking the kind of “blowout” growth in OCI or RPOs that could have further bolstered market confidence.

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Oracle’s earnings also slightly underwhelmed Wall Street expectations. The company reported adjusted earnings per share of $1.47, just shy of the FactSet consensus of $1.48.

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On a GAAP basis, Oracle posted $3.15 billion in net income, or $1.10 per share, compared to $2.50 billion, or 89 cents per share, in the same period last year. While the year-over-year improvement reflects Oracle’s ongoing business strength, the earnings miss added to concerns about whether its stock price growth remains justified.

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Adding to its AI narrative, Oracle announced a notable partnership with Meta Platforms Inc. Meta intends to utilize Oracle's AI Cloud Infrastructure, signaling confidence in Oracle's capabilities to support advanced AI applications.

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On the earnings call, Catz cited the Meta deal as an example of Oracle’s increasing "win rates" in securing major customers. “Meta was not booked in the Q2 quarter, only in Q3,” she clarified, suggesting that the benefits of this partnership will be reflected in future financial results.

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Oracle’s fiscal second-quarter results provided a mixed bag for investors. On one hand, the company showcased robust growth in AI-related infrastructure and cloud services, reinforcing its position in high-growth markets. However, its slight revenue and earnings misses highlighted the challenges of meeting elevated investor expectations after a remarkable stock rally this year.

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The Meta partnership, along with Oracle's strong RPO growth, offers hope for continued momentum in AI and cloud computing. But as analysts and investors digest these results, the company will likely need to deliver more consistent “blowout” performances to sustain its lofty valuation.

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With fiscal third-quarter results expected to reflect the impact of new deals like Meta, Oracle’s ability to navigate this high-expectation environment will remain under close scrutiny. For now, Monday’s after-hours dip serves as a reminder of the fine balance between growth stories and financial results in the tech sector.

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