Oracle (ORCL) stock fell more than 7% Tuesday, putting shares on track for their steepest daily loss of the year following second-quarter results that fell short of Wall Street analyst expectations and a forecast for AI spending that drew investor scrutiny.
Joining other high flying tech companies ramping up their cloud businesses, Oracle reaped the benefits from the rapid expansion of data infrastructure across corporate America. The company reported that revenue from its cloud Infrastructure unit surged 52% to $2.4 billion. But overall sales and earnings missed analyst forecasts. The company posted earnings of $1.47 a share, compared to analysts estimates of $1.48, according to data compiled by Bloomberg.
“Oracle shares following a mixed quarter that was underscored by an acceleration of total revenue, though missing consensus estimates on the top and bottom-line,” D.A. Davidson analysts said in a note.
Oracle shares had been on a tear. Prior to earnings, they had risen more than 80% this year. The company set a new high in November, riding the momentum of the AI boom as the tech world’s biggest players capitalize on the excitement around new forms of chatbots, productivity software and data processing.
But as analysts at Guggenheim note, the latest quarterly results put pressure on the stock after a “tremendous 2024 run.” Representing the bullish case for the stock, analysts wrote after earnings, “the numbers indicate a business with continued impressive momentum,” pointing to the accelerated growth of the cloud infrastructure unit. “We view these results as solid, but we’re more excited about what’s to come,” they wrote, forecasting continued cloud growth and boosts to Oracle’s software service.
Another factor hitting the stock may be investor reaction to spending driven by the artificial intelligence boom.
Following cloud competitors Amazon (AMZN), Microsoft (MSFT) and Google-parent Alphabet (GOOG, GOOGL), Oracle is also investing heavily in building out its data infrastructure, to better harness the power of AI technology. Executives said they plan to double capital expenditures for fiscal 2025, lifting the figure to around $15 billion.
But Wall Street has presented mixed feelings over the tech industry’s recent AI spending spree. During disappointing or even lukewarm earnings, the market has largely punished tech platforms for boosting their capex, which diminish their margins and have yet to translate to meaningful revenue gains.
Oracle appears to be facing similar concerns.
