Oracle Stock Faces Steep Decline as Cloud Growth Concerns Intensify

Oracle Stock

Oracle (NASDAQ:ORCL) witnessed a significant 10.4% slump in its shares on Tuesday, fueled by another quarter of lackluster cloud sales and a pessimistic forecast that raised apprehensions about the trajectory of growth for a business poised to capitalize on the surge in generative AI.

The cloud infrastructure unit at Oracle, in competition with industry giants Amazon Web Services and Microsoft Azure, has experienced a notable slowdown in revenue growth over the past three quarters. Analysts at Barclays expressed concern, stating, “The lower OCI (Oracle Cloud Infrastructure) growth will worry investors as this is the main investment story.”

Despite Oracle’s shares having climbed 40% throughout the year, driven by investor optimism surrounding the increasing adoption of generative AI technology, exemplified by popular chatbot ChatGPT, the current setback places the company at risk of losing about $33 billion in market capitalization, with shares trading at $103.14.

Oracle attributed the weak results to supply constraints, with CEO Safra Catz acknowledging that demand for the company’s generative AI and cloud infrastructure services was escalating at an “astronomical rate.” However, analysts remained skeptical about the company’s prospects, prompting at least four brokerages to lower their price targets on the stock following the results.

Piper Sandler, a brokerage firm, expressed reservations, noting, “Two consecutive quarters of cloud revenue shortfalls partially erode our confidence that a cloud transition can drive a sustainable top-line growth recovery.”

In the second quarter ending Nov. 30, Oracle reported a 25% increase in total cloud revenue, encompassing software, falling short of the company’s expectations for a 29%-31% rise. Factors contributing to the disappointing results included weaker enterprise spending and fierce competition from larger industry players.

Oracle’s third-quarter revenue growth forecast, including the health data software platform Cerner, ranged between 6% and 8%. However, the mid-point of this forecast fell below analysts’ average estimate, hovering around 7.6%, according to LSEG data. These developments have raised concerns about Oracle’s ability to sustain robust top-line growth in the face of evolving market dynamics and intensifying competition.

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