Oracle reports fiscal second-quarter earnings late Monday. The software giant is likely hoping for a kinder reception from Oracle stock investors this time around.
Oracle shares lost 13% the day after it reported fiscal 2024 first quarter earnings in September. Investors fretted over slowing growth for its cloud-services business and a sales forecast that was below expectations.
ORCL stock has gained nearly 40% this year but has scuffled since its Sept. 11 earnings report. Shares are off 10% from a 52-week high of 127.42 reached that same day. A growing group of analysts expect Oracle to seize on corporate excitement about generative artificial intelligence to grow its cloud services sales. But it faces a range of challenges in getting there. The firm's earnings report could offer a chance for the company to highlight its progress.
Ahead of its report, Oracle stock is up a fraction at 114.31 in recent action on the stock market today. Shares are trading above the company's 50-day moving average, according to MarketSmith.
Here's what to know about Oracle earnings:
Oracle Stock: Cloud Watching
Overall, analysts expect Oracle to post earnings of $1.33 per share on $13 billion in sales for the November quarter, according to FactSet. That would mark a 10% earnings increase and 6% sales increase.
Oracle's earnings increased 16% year over year in its fiscal first quarter and 8% year over year for both the fiscal 2023 fourth and third quarters.
Oracle's cloud business will be in focus. That includes Oracle Cloud Infrastructure, a cloud services business that is central to the 46-year-old database company's strategy to challenge cloud hyperscalers Amazon and Microsoft. Further, OCI hosts Oracle's main generative AI offering for businesses.
Cloud services revenue grew 30% year over year for Oracle's August quarter to $4.6 billion. In the May quarter, the category grew 54% annually. The slowdown likely contributed to ORCL stock's slide following the report.
Within that category, OCI grew faster last quarter, up 66% year over year to $1.5 billion in sales.
Guggenheim analyst John DiFucci lists ORCL stock as a buy and best idea. In a client note Thursday, he said commentary from clients is increasingly positive on Oracle's cloud offerings.
"Partners were very encouraged by OCI's increasing recognition in the market with the largest saying large enterprise consideration vs. hyperscalers has been gaining more traction over the past six months than ever before," DiFucci wrote.
AI Push
Analysts will be listening closely for updates on Oracle's generative AI strategy. Upgrades from UBS and Barclays earlier this year noted that Oracle has a strong supply of AI chips from Nvidia that could help it land customers for OCI.
During Oracle's last earnings call, Chairman and Chief Technology Officer Larry Ellison said AI development companies had booked more than $4 billion of capacity on Oracle's cloud platform, doubling the number from the prior quarter.
The question is when the company can seize on that booking. ORCL shares fell sharply in late October after Oracle executives detailed supply constraints and other challenges in building AI-focused data centers during a customer event.
UBS analyst Karl Keirstead concluded following the event that "the AI lift to OCI will come; it is a when/timing (not an if) question," he wrote in a client note.
Buying Opportunity?
Barclays analyst Raimo Lenschow upgraded Oracle stock to a buy rating in September, citing its AI potential. But he is less optimistic about the company this quarter.
"True, the long-term story looks healthy and hence our recent upgrade, but Q2 in itself has too many obstacles," Lenschow wrote in a client note.
Those obstacles include revenue headwinds as Oracle's integrates health care data systems company Cerner into its business after a $28 billion acquisition last year. Further, the company faces tough comparison against strong OCI growth in November 2022 quarter.
"The (fiscal) second half situation is much more favorable and hence we would view any weakness around Q2 as a buying opportunity," Lenschow said.
However, Mizuho analyst Siti Panigrahi is more positive on the coming report.
"While we expect FQ2 to be solid, we anticipate a strong FQ3 guide — particularly if AI Superclusters (GPUs) come online sooner than expected — which could help shares rerate," Panigrahi wrote in a client note Thursday.
He expects solid results from the company's cloud business, driven by OCI as well as enterprise resource management platform NetSuite.
"We believe Oracle continues to be successful in migrating its legacy base to its cloud offerings," Panigrahi wrote.
Oracle Stock: Technical Ratings
The IBD Stock Checkup tool shows that Oracle has a Composite Rating of 83 out of a best-possible 99. The rating means Oracle stock currently outperforms 83% of all stocks based on fundamental and technical stock-picking criteria.
In addition, shares have a Relative Strength Rating of 81 out of 99, which measures how a stock's price performance over the last 52 weeks holds up against other stocks in IBD's database.
Beyond that, Oracle stock has an Accumulation/Distribution Rating of B-. That rating measures daily price and volume changes in institutional ownership of a stock for the prior 13 weeks. A grade of A signals heavy institutional buying and B indicates moderate.
