Oracle's Shares Plummet Amid Earnings Miss and Cloud Growth Concerns

Oracle Corporation's shares experienced a significant downturn recently, continuing a two-day decline and hitting a new low since November 2024. On Monday, the company's shares dropped by 6.67%, marking a two-day cumulative drop of 7.28%. This comes despite earlier enthusiasm surrounding Oracle's cloud business, which had driven its stock price to historic highs.

Oracle's disappointment stemmed from its second-quarter earnings for fiscal year 2025, which ended on November 30th. The company reported revenues of $140.6 billion, marking a 9% year-over-year increase, but falling slightly short of analysts' expectations. Although the performance was not catastrophic, it failed to meet the market's elevated expectations due to previous growth momentum in their cloud services.

The company's cloud infrastructure services, a pillar of its revenue stream, grew 52% to $24 billion, aligning with market predictions. However, remaining performance obligations, a measure of future revenue, decreased to $97 billion from the previous quarter's $99 billion. This dip signals potential concerns about future growth rates, with dissatisfaction likely exacerbated by a non-GAAP earnings per share of $1.47, just missing forecasted results of $1.48.

Oracle's CEO Safra Catz emphasized the outstanding performance in AI demand, driving a 336% increase in GPU consumption, describing this as significantly outpacing competitors in the large-scale cloud infrastructure sector. Moreover, Oracle delivered a powerful AI supercomputer this quarter, designed to scale up to 65,000 NVIDIA H200 GPUs. Despite this optimism, third-quarter projections expect revenue growth between 7% and 9%, which represents a mid-range revenue estimate of approximately $143 billion. This is lower than what analysts were anticipating.

Analysts express concern about Oracle's extensive capital expenditure, necessary for sustaining competitive cloud operations, which applies pressure on profit margins. Market specialists suggest that while Oracle's cloud business remains robust, the expectations attached to AI development have reached unsustainable levels. Deviations, even minor, from historical over-performances are causing unease in the market, leading to the recent sharp decline in Oracle's share price.