Oracle (ORCL) stock fell Tuesday as investors digested fiscal second quarter earnings results that missed estimates.
Oracle stock lost more than 6.5% to close at 177.74 on the stock market today.
Meta Turns To Oracle Cloud A big part of Oracle’s rally this year is the success of its Oracle Cloud Infrastructure business, especially in working with AI startups.
Sills reiterated a neutral call and 195 price target for Oracle stock.
Heading into the report, Oracle stock had an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup.
Tuesday saw a decline in Oracle’s (ORCL) stock as investors processed fiscal second quarter earnings results that fell short of expectations. The stock’s momentum in giving cloud computing power to AI model developers, however, made analysts largely optimistic about the stock after the report. Facebook parent company Meta Platforms (META) was highlighted by Oracle as a new client on that list.
Oracle’s stock fell more than 6.5 percent to close at 177.74 percent today. This comes after Oracle announced late Monday adjusted earnings of $1.47 per share on sales of $14.06 billion. Based on sales of $14.12 billion, consensus estimates predicted $1.48 adjusted earnings per share, according to FactSet.
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However, after accounting for foreign exchange headwinds, analysts pointed out that the multinational corporation reported results that were essentially in line. Additionally, it didn’t help that Oracle was in the midst of a hot streak, with shares rising 80% for the year and more than 30% since its last earnings announcement in early September.
But there was much to like about the quarter for some analysts who were optimistic about Oracle stock.
“Although there isn’t much upside in the 2Q/Nov quarter, Oracle shares are cooling off in the aftermarket. However, a strong outlook for the upcoming 3Q/Feb and 4Q/May quarters keeps the core growth acceleration thesis intact,” UBS analyst Karl Keirstead wrote in a client note late Monday.
Oracle Cloud Is Meta’s Next Step.
The success of Oracle Cloud Infrastructure, particularly in collaborating with AI startups, has played a significant role in the company’s rally this year. Amazon.com (AMZN), Microsoft (MSFT), and Alphabet’s (GOOGL) Google are much larger hyperscalers that compete with OCI, which rents computing power to other businesses. After growing by 45% in Oracle’s previous quarter, OCI revenue increased by 52% to $2.04 billion in Oracle’s November quarter.
“Record level AI demand” propelled OCI to a “much higher growth rate than any of our hyperscale cloud infrastructure competitors,” according to a news release from Oracle Chief Executive Safra Catz. “.”.
A well-known client was also announced by the business.
In a press release, Oracle Chairman Larry Ellison stated, “Oracle Cloud Infrastructure trains several of the world’s most important generative AI models because we are faster and less expensive than other clouds.”. Additionally, we recently inked a deal with Meta that allows them to work with Oracle on the creation of AI agents based on Meta’s Llama models and utilize Oracle’s AI Cloud Infrastructure. “..”.
With its capacity devoted to operating its global platforms, Meta is a hyperscaler in and of itself. Up to $40 billion will be spent by the tech giant this year on capital projects, primarily associated with its AI push. However, the business has previously collaborated with other cloud service providers, such as Microsoft Azure, with whom it announced a “strategic partnership” in 2022.
Meta could not be reached for comment at this time.
Analysts were informed by Catz that the deal was scheduled for the company’s third quarter and was a component of the backlog growth anticipated for the following quarter.
AI push is viewed favorably by Oracle stock analysts.
In addition, Ellison stated during the company’s earnings call that Meta is now one of the “major AI customers” alongside Elon Musk’s xAI startup, Nvidia (NVDA), the startup Cohere, and OpenAI, the company that created ChatGPT.
Meta will “leverage Oracle’s Gen2 AI Infrastructure to accelerate the development of innovative generative AI technology,” according to a statement from Oracle on its website. Oracle, on the other hand, intends to leverage Meta’s Llama models to support its app portfolio.
After the earnings report, analyst Sebastien Naji of William Blair reaffirmed his outperform rating for Oracle, pointing to “continue strength” in the company’s backlog of outstanding performance obligations and OCI’s rapid growth.
“We continue to see a favorable risk/reward equation as Oracle benefits from 1) AI and cloud tailwinds in OCI (where capacity is improving), 2) a database migration to Autonomous Database (including @Cloud partnerships), and 3) an apps business showing early signs of a recovery (bookings trending better”, Naji continued, “even though the stock could be rangebound in the coming months until the company can demonstrate better conversion of its bookings into revenue.”. “.
However, some analysts pointed out that Oracle will face risks if its AI push is successful because it will need to spend a lot of money to meet demand.
“We acknowledge Oracle is headed toward revenue acceleration,” Brad Sills, an analyst at BofA Securities, wrote early on Tuesday. However, given the disproportionate growth from databases on OCI versus apps and the cross-selling of other high-value cloud infrastructure services observed by hyperscalers, we are concerned that increasing the mix of cloud revenue may eventually make scaling on capital expenditure more difficult. “.”.
Sills reaffirmed his neutral outlook and price target of 195 for Oracle stock.
The worst day in a year for Oracle stock.
The decline on Tuesday was the biggest percentage drop for Oracle since December, as the company’s stock fell below two significant support levels in its 21-day and 50-day moving averages. It dropped 12 points 4 percent on December 12, 2023, according to Dow Jones Market Data. The slide that day came after Oracle’s Q2 2024 fiscal report.
The tech giant’s stock is up just under 70% so far this year, but it is roughly 10 percent below the record 198.31 that Oracle’s stock reached on Monday during intraday trading.
Oracle’s stock is still on track to have its best year since 1999.
According to IBD Stock Checkup, Oracle’s stock had an IBD Composite Rating of 94 out of 99 before the report was released. Five distinct proprietary ratings are combined into one rating by the score. Furthermore, the Composite Rating of 90 or higher indicates the top growth stocks.
Additionally, Oracle received a 92 out of 99 IBD Relative Strength Rating. Oracle has outperformed 92% of all stocks over the last 12 months, according to the RS Rating.
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