Oracle Earnings: Stock Plummets on Weaker Forecast

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Key Morningstar Metrics for Oracle

What We Thought of Oracle’s Earnings

Narrow-moat Oracle ORCL reported second-quarter results that aligned with our revenue expectations and were slightly better than our adjusted earnings per share assumption. Strong artificial intelligence demand continued to drive revenue growth, particularly in Oracle cloud infrastructure, where performance remains impressive. This growth is reflected in the firm’s performance obligations (or backlog), which surged 50% to $97 billion. Guidance was slightly shy of expectations on both the top and bottom lines. Accordingly, we have adjusted our model and are lowering our fair value estimate to $195 from $205. Relative to broader FactSet consensus estimates for second-quarter results and third-quarter guidance, we characterize the quarter as slightly light, which explains the 8% selloff in the after-market. We view shares as slightly undervalued.

Migration to Oracle Cloud

Second-quarter revenue increased 9% year over year in constant currency to $14.1 billion. Revenue was within the guidance range but was just shy of consensus. Cloud infrastructure solutions revenue grew 52% to $2.4 billion, driven by demand for data centers with large GPU clusters used in AI model training. Cloud database annualized revenue rose 28% to $2.2 billion, reflecting the continued migration of on-premises database users to Oracle cloud. We expect this strong backlog and healthy migration trend to accelerate revenue growth through fiscal 2026.

Non-GAAP EPS for the quarter was $1.47, a 10% year-over-year increase, compared with the top end of guidance at $1.46. The operating margin of 43.4% was only in line with FactSet consensus, so investor expectations may be catching up to OCI’s gross margin scaling benefits.

OCI remains a key growth driver, with demand outpacing supply. OCI is gaining market share against larger rivals as an alternative to incumbent providers and is seeing traction in large deals, such as with Meta Platforms. We believe OCI has scaled meaningfully and continues to offer a viable solution in a multicloud world.

We characterize guidance as mildly disappointing, and we trim our near-term estimates slightly to reflect guidance. Management expects third-quarter revenue to grow between 9% and 11% year-over-year to $14.6 billion. Non-GAAP EPS is expected to be between $1.50 and $1.54. Given continued strong bookings and cloud growth, we view these targets as achievable.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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