Oracle shares sank 11% in extended trading on Wednesday after the database software maker reported lower quarterly revenue than expected despite booming demand for its artificial intelligence infrastructure.
Here’s how the company did in comparison with LSEG consensus:
- Earnings per share: $2.26 adjusted vs. $1.64 expected
- Revenue: $16.06 billion vs. $16.21 billion expected
With respect to guidance, Oracle called for $1.70 to $1.74 in adjusted earnings per share and 19% to 21% revenue growth for the fiscal third quarter. The LSEG consensus included $1.72 in earnings per share and $16.87 billion in revenue, implying 19% growth.
Oracle’s fiscal second-quarter revenue grew 14% from a year ago in the quarter that ended Nov. 30, according to a statement. Net income, rose to $6.14 billion, or $2.14 per share, from $3.15 billion, or $1.13 per share, in the same quarter a year earlier. Adjusted earnings exclude stock-based compensation.
The company posted $7.98 billion in cloud revenue, more than the $7.92 consensus among analysts polled by StreetAccount. Cloud infrastructure revenue totaled $4.1 billion, up 68%. Oracle also pointed to cloud infrastructure business from Airbus, Canon, Deutsche Bank, LSEG, Panasonic and Rubrik. Software revenue fell 3% to $5.88 billion, missing the $6.06 billion average analyst estimate.
Remaining performance obligations, a measure of contracted revenue that hasn’t yet been recognized, soared 438% to $523 billion, topping the $501.8 billion average analyst estimate, according to StreetAccount. Doug Kehring, Oracle’s principal financial officer, said in the release that RPO were driven “by new commitments from Meta, Nvidia and others.”
Over the past decade, Oracle has diversified its business beyond databases and enterprise software and into cloud infrastructure, where it competes with Amazon, Microsoft and Google. Those companies are all vying for big AI contracts and are investing heavily in data centers and hardware necessary to meet expected demand.
OpenAI, which sparked the generative AI rush with the launch of ChatGPT three years ago, has committed to spending more than $300 billion on Oracle’s infrastructure services over five years.
Oracle’s report lands at a critical moment for the company, which has tried to position itself at the center of the AI market by committing to massive build-outs. While the move has been a boon for Oracle’s revenue and its backlog, investors have grown concerned about the amount of debt the company is raising and the risks it faces should the momentum slow.
Kehring committed to keeping Oracle’s investment-grade debt rating on a conference call with analysts.
“In addition, there are other financing options through customers that may bring their own chips to be installed in our data centers and suppliers who may lease their chips rather than sell them,” Kehring said. “Both of these options enable Oracle to synchronize our payments with our receipts and borrow substantially less than most people are modeling.”
But with the new commitments, Oracle now sees about $50 billion in full-year capital expenditures, up from $35 billion as of September, Kehring said.
“What I would say is we’ve been reading a lot of analyst reports, and we’ve read quite a few that show an expectation of upwards of $100 billion for Oracle to go out and kind of complete these build-outs,” Kehring said. “And based on what we see right now, we expect we will need less, if not substantially less, money raised than that amount to go and fund this build-out.”
Oracle shares plummeted 23% in November, their worst monthly performance since 2001 and. As of Wednesday’s close, the stock is 32% below its record reached in September, though it’s still up 34% for the year, outperforming the Nasdaq, which has gained 22% over that stretch.
During the quarter, Oracle named executives Clay Magouyrk and Mike Sicilia as the company’s new CEOs, succeeding Safra Catz. Oracle also introduced AI agents for automating various facets of finance, human resources and sales.
Oracle said that GAAP and adjusted earnings were impacted by a $2.7 billion pre-tax gain on the sale of chip designer Ampere, which SoftBank agreed to acquire for $6.5 billion in March. Oracle, which was an investor in Ampere, said at the time that it would sell its stake.
“Oracle sold Ampere because we no longer think it is strategic for us to continue designing, manufacturing and using our own chips in our cloud data centers,” Chairman and co-founder Larry Ellison was quoted as saying in Wednesday’s statement. He said the company is “now committed to a policy of chip neutrality,” and will continue to buy the latest graphics processing chips from Nvidia, but needs “to be prepared and able to deploy whatever chips our customers want to buy.”
— CNBC’s Ari Levy contributed to this report.
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