Oracle Corporation (NYSE:ORCL) shares are down more than 12% Tuesday after the company reported earnings nearly in-line with expectations but declining cloud licensing revenue.
The company posted adjusted earnings of $1.19 per share on revenue of $12.45 billion, up from $1.03 per share on revenue of $11.45 billion a year earlier. Analysts had predicted earnings of $1.15 per share on revenue of $12.45 billion.
"Oracle Cloud Infrastructure revenue grew 66% in Q1, much faster than our hyperscale cloud infrastructure competitors," CEO Safra Catz said in a statement. "Total cloud services revenue, infrastructure plus applications, grew 30% to $4.6 billion in the quarter.”
However, investors may have latched onto Oracle’s cloud license and on-premises license segment, which saw revenue fall 10% year-over-year to $809 million, below Street expectations of $892.7 million.
“Oracle didn’t deliver the expected upside, as most key metrics were in-line," analysts at UBS wrote. "While 64% Infrastructure-as-a-Service (mostly OCI) growth is outstanding, there was no upside to the guide and sequential IaaS revs of ~$95 million were merely comparable to the year-ago period despite a) Uber/others ramping and b) the AI start-up backlog kicking-in. Oracle blamed backlog-to-usage timing, saying 'it takes time to ramp/onboard customers' and also cited the challenge of scaling its AI infrastructure capacity to meet demand."
Oracle made sure to highlight its generative AI progress.
"Oracle's Gen2 Cloud has quickly become the number 1 choice for running Generative AI workloads," Chief Technology Officer Larry Ellison said. "Why? Because Oracle has the highest performance, lowest cost GPU cluster technology in the world. NVIDIA themselves are using our clusters, including one with more than 4,000 GPUs, for their AI infrastructure.”
He continued, “Our GPU clusters are built using the highest-bandwidth and lowest-latency RDMA network—and scale up to 32,000 GPUs. As a result, cutting edge companies doing LLM development such as Mosaic ML, Adept AI, Cohere plus 30 other AI development companies have recently signed contracts to purchase more than $2 billion of capacity in Oracle's Gen2 Cloud."
Ultimately, that was enough for UBS to maintain its Buy rating for Oracle.
"[W]e remain optimistic about OCI, based on a) Oracle reaffirming the FY24 IaaS growth target of ~50%, b) the now $4 billion of OCI AI commitments starting to convert and c) Oracle bumping up its FY24 capex target to ~$8.5 billion (we were at $8 billion) to meet demand," the analysts wrote.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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