Oracle Corporation (ORCL) shares took a beating Thursday, falling 13% to $193.98 after the database giant reported quarterly revenue that disappointed investors despite delivering impressive cloud growth metrics.
The Numbers Behind the Decline
Oracle reported second quarter revenue of $16.05 billion, falling short of the $16.21 billion consensus estimate. The bright spot? Adjusted earnings per share came in at $2.26, crushing the $1.64 analyst estimate.
But here's where it gets interesting. While the headline revenue number missed, Oracle's cloud business is actually booming. Cloud revenue jumped 34% year-over-year to $8 billion. Even more striking, Remaining Performance Obligations skyrocketed 438% to $523 billion, fueled by massive multiyear commitments from Meta Platforms (META), Nvidia (NVDA) and other tech heavyweights. Cloud infrastructure revenue alone climbed 68% to $4.1 billion.
The flip side? Traditional software revenue dropped 3% to $5.9 billion, highlighting the ongoing transition in Oracle's business model.
Strategic Shift on Chip Design
Oracle made a notable strategic pivot, announcing it's abandoning its own chip design ambitions. The company booked a $2.7 billion pre-tax gain from selling its stake in Ampere, explaining that designing proprietary chips no longer fits its strategy. Instead, Oracle is embracing a "chip neutral" approach, allowing customers to choose whatever CPUs and GPUs they prefer.
Management also highlighted explosive growth in its multicloud database business, which grew 817% in the quarter. This comes as Oracle continues embedding datacenters directly within Amazon, Google and Microsoft cloud regions. The company emphasized that all five top AI models currently run on Oracle Cloud Infrastructure.
Wall Street Reacts
Following the earnings report, analysts rushed to adjust their price targets, though most maintained bullish ratings. Here's how the street responded:
- Stifel analyst Brad Reback kept his Buy rating but slashed his price target from $350 to $275.
- Bernstein analyst Mark L. Moerdler maintained an Outperform rating while lowering his target from $364 to $339.
- BMO Capital analyst Keith Bachman kept an Outperform rating but cut his target from $355 to $270.
- B of A Securities analyst Brad Sills maintained a Buy rating with a reduced price target of $300, down from $368.
- Piper Sandler analyst Hannah Rudoff held her Overweight rating but dropped her target from $380 to $290.
The message from analysts seems to be: Oracle's long-term cloud story remains compelling, but near-term expectations needed recalibration.
