Oracle Shares Sink On Disappointing Cloud Results

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Oracle shares trade lower on disappointing cloud results and sluggish forecast, as company cites capacity crunch in monetising AI boom

Shares in US tech firm Oracle fell as much as 10 percent in early trading on Tuesday after the company delivered its latest sequential quarter of cloud sales falling below expectations and a forecast that disappointed investors who have been expecting the firm to benefit from the explosion in generative artificial intelligence (AI) this year.

The past three quarters have seen slowing revenue growth for Oracle’s cloud infrastructure unit, known as Oracle Cloud Infrastructure or OCI, which competes with the likes of Amazon Web Services and Microsoft Azure.

Total cloud revenue, including cloud software, rose 25 percent in the quarter ended 30 November, compared to the company’s own expectations of 29 to 31 percent growth.

The firm forecast fiscal third-quarter revenue growth, including from heath data software platform Cerner, in the range of 6 to 8 percent, the mid-point of this range being below analysts’ average estimates of about 7.6 percent, according to data compiled by LSEG, formerly Refinitiv.

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Image credit: Tara Winstead/Pexels

Investor disappointment

Oracle said cloud infrastructure revenue reached $1.6 billion (£1.3bn) in the period, up 52 percent, with clients including Elon Musk’s AI startup xAI, Halliburton and Samsung.

But the company said its capacity fell short of demand for the quarter amidst booming demand for AI infrastructure and a shortage of Nvidia’s industry-leading AI accelerator chips.

“We did not bring up as much capacity as we could have used this past quarter,” said Oracle chief executive Safra Catz during a call with analysts.

She said demand for Oracle’s generative AI and cloud infrastructure services was increasing at “an astronomical rate”.

AI boom

Oracle co-founder Larry Ellison said on the call that he expected OCI’s growth rate to be above 50 percent for “a few years”.

Weaker enterprise spending and heavy competition from dominant cloud players were amongst the factors dragging down overall results, Oracle said.

The firm’s shares are up about 40 percent this year as investors expect companies that provide cloud infrastructure services to benefit from booming demand for resource-heavy generative AI services such as OpenAI’s ChatGPT.