Oracle Posts Weak Cloud Sales, Raising Fear of Delayed Payoff
(Bloomberg) — Oracle Corp. reported disappointing cloud revenue, suggesting it will take longer than expected for the company to see its recent massive AI bookings pay off.
In the second quarter, financial cloud sales rose 34% to $7.98 billion, while revenue from the company’s closely watched infrastructure business rose 68% to $4.08 billion. Both figures were well below analysts’ estimates.
The company said Wednesday that its remaining performance liability, a measure of bookings, rose to $523 billion in the second quarter of the fiscal year ended Nov. 30. Analysts on average estimated $519 billion, according to data compiled by Bloomberg.
Known for its database software, Oracle has recently found success in the competitive cloud computing market. It’s building a massive data center for OpenAI to power its AI efforts, and it’s also building ByteDance Ltd.’s TikTok and Meta Platforms Inc. It also counts companies such as as major cloud customers.
Still, Wall Street has raised doubts about the costs and timelines needed to develop AI infrastructure at such a large scale. Oracle took on significant debt and committed to leasing multiple data center sites.
Investors want to see Oracle turn its high spending on new data center infrastructure into revenue as quickly as it promises. Capital expenditures, a measure of data center spending, reached nearly $12 billion in the quarter, up from $8.5 billion in the previous period. In September, the company projected capital spending of $35 billion for the fiscal year.
Analysts expected $8.25 billion in capital spending this quarter.
“Oracle is very good at building and operating high-performance and cost-effective cloud data centers,” Clay Magouyrk, one of Oracle’s two CEOs, said in a statement. “Our data centers are highly automated, so we can build and run more of them.”
Shares fell 5% in extended trading after closing at $223.27 in New York. The stock has lost about a third of its value since Sept. 10, when investor excitement about Oracle’s cloud business sent the company to an all-time high.
This is Oracle’s first earnings report since Magouyrk and Mike Sicilia shared the CEO role, replacing longtime Chief Executive Officer Safra Catz.
Some of the negative sentiment from investors in recent weeks is linked to growing skepticism about the commercial prospects of OpenAI, which is seeing more competition from companies like Alphabet Inc.’s Google, Kirk Materne, an analyst at Evercore ISI, wrote in a note ahead of earnings. He added that investors want to see Oracle management explain how they might adjust their spending plans if demand from OpenAI changes.
–With help from Ian King.
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