Oracle stock fell Tuesday as investors digested fiscal second quarter earnings results that missed estimates. But analysts were mostly positive on the stock following the report, citing its momentum providing cloud computing power to AI model developers. Oracle touted a new client on that list: Facebook parent Meta Platforms.
Oracle stock lost more than 6.5% to close at 177.74 on the stock market today. That's after Oracle posted adjusted earnings of $1.47 per share on sales on $14.06 billion late Monday. Consensus estimates called for $1.48 adjusted earnings per share on sales of $14.12 billion, according to FactSet.
However, analysts noted that the global company posted results that were largely in-line when adjusted for foreign exchange headwinds. It also didn't help matters that Oracle entered the report on a red-hot run that had seen shares climb 80% on the year and more than 30% since its last earnings report in early September.
But some analysts bullish on Oracle stock saw plenty to like in the quarter.
"While Oracle shares are cooling-off in the aftermarket – likely due to the lack of material 2Q/Nov upside – a continued solid tone on the coming 3Q/Feb and 4Q/May quarters leaves the core growth acceleration thesis intact," wrote UBS analyst Karl Keirstead in late Monday client note.
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. OCI rents computing power to other companies, competing against much-larger hyperscalers Amazon.com (AMZN), Microsoft (MSFT) and Alphabet's (GOOGL) Google. OCI revenue grew 52% to $2.4 billion for Oracle's November quarter, accelerating from 45% growth in Oracle's previous quarter.
Oracle Chief Executive Safra Catz said in a news release that "record level AI demand" powered OCI to a "much higher growth rate than any of our hyperscale cloud infrastructure competitors."
The company also announced a big name client.
"Oracle Cloud Infrastructure trains several of the world's most important generative AI models because we are faster and less expensive than other clouds," Oracle Chairman Larry Ellison said in a news release. "And we just signed an agreement with Meta — for them to use Oracle's AI Cloud Infrastructure — and collaborate with Oracle on the development of AI Agents based on Meta's Llama models."
Meta is a hyperscaler in its own right with its capacity focused on running its global platforms. The tech giant is spending up to $40 billion this year on capital expenditures, mostly related to its AI push. But the company has partnered with other cloud service providers before this, including a "strategic partnership" with Microsoft Azure announced in 2022.
Meta could not immediately be reached for comment.
Catz told analysts the deal was booked for the company's upcoming third quarter and is part of a backlog growth the company expects next quarter.
Oracle Stock Analysts Positive On AI Push
Ellison added on the company's earnings call that Meta joins a list of "major AI customers" that includes ChatGPT creator OpenAI, Elon Musk's xAI startup, Nvidia and the startup Cohere.
Oracle wrote on its website that Meta will "leverage Oracle's Gen2 AI Infrastructure to accelerate the development of innovative generative AI technology." Oracle, meanwhile, plans to utilize Meta's Llama models to help power its portfolio of apps.
William Blair analyst Sebastien Naji reiterated an outperform rating for Oracle following the earnings report, citing "continue strength" in Oracle's remaining performance obligations, or backlog, and accelerating growth for OCI.
Naji added, "While the stock could be rangebound in the next few months – until the company can show better conversion of its bookings into revenue – 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)."
On the other hand, some analysts highlighted that even with a successful AI push, Oracle will have to spend big to keep up with demand, creating risks.
"We acknowledge Oracle is headed toward revenue acceleration," wrote BofA Securities analyst Brad Sills wrote early Tuesday. "However, with a higher mix of cloud revenue, our concern is that scale on capex could be more challenging over time given the outsized growth from database on OCI versus apps and cross-sell of other high value cloud infrastructure services seen by hyperscalers."
Sills reiterated a neutral call and 195 price target for Oracle stock.
Oracle Stock Worst Day In 12 Months
With Tuesday's slide, Oracle stock broke below two key support levels in its 21-day and 50-day moving averages, That marked Oracle's largest percent decrease since Dec. 12, 2023, when it fell 12.4%, according to Dow Jones Market Data. The slide that day followed Oracle's fiscal Q2 2024 report.
Meanwhile, the tech giant's shares are ahead just under 70% this year but about 10.5% off a record 198.31 that Oracle stock hit during intraday trading Monday.
Oracle stock remains on pace for its best year since 1999.
Heading into the report, Oracle stock had an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. Further, the best growth stocks have a Composite Rating of 90 or better.
Further, Oracle's IBD Relative Strength Rating was 92 out of 99. The RS Rating means that Oracle has outperformed 92% of all stocks over the past year.
