ORCL slips 7% as rising expenses, disappointing outlook weigh on shares

Oracle reported Q2 adjusted EPS of $1.47, narrowly missing the consensus of $1.48, and revenue of $14.06 billion, slightly below estimates of $14.12 billion. Despite these misses, revenue grew 9% year-over-year in constant currency (CC), reflecting solid underlying performance.

Oracle Cloud Infrastructure (OCI) revenue grew 52% year-over-year in CC, exceeding consensus estimates of 50.9%. The acceleration underscores the company's expanding capabilities and demand driven by AI workloads, including notable deals like Meta's adoption of OCI.

Oracle reiterated its FY25 guidance for cloud growth of 50%+, positioning it on track to achieve its $25 billion cloud revenue target for FY26. This growth is bolstered by robust AI infrastructure adoption, strategic partnerships with hyperscalers like Microsoft and Google, and continued capacity expansion.

Total RPO grew 50% year-over-year to $97 billion, highlighting the strength of Oracle's long-term contracts. However, RPO declined 2% sequentially, aligning with seasonal patterns but sparking some investor concerns about near-term momentum.

Oracle's CapEx surged to $4 billion in the quarter, above expectations, as it doubled down on investments in GPU capacity and networking. The company plans to further accelerate CapEx to $15 billion in FY25, reflecting its commitment to scaling OCI and supporting AI growth.

Oracle's Q3 guidance disappointed, projecting non-GAAP EPS of $1.47-$1.51 (vs. $1.57 consensus) and revenue growth of 7-9% in CC (vs. 10% expected). FX headwinds and a $0.05 investment loss weighed on these projections, contributing to a muted market reaction.

Oracle shares fell ~7% post-earnings, reflecting elevated expectations and concerns about near-term guidance. At ~51x forward free cash flow, analysts suggest limited room for multiple expansion, though the long-term growth trajectory remains attractive.

Analysts maintained largely positive outlooks, emphasizing Oracle’s strong cloud growth and robust pipeline. Price targets ranged from $175 (Stifel) to $210 (Mizuho), with many viewing the post-earnings dip as a buying opportunity given the company’s leadership in AI and multi-cloud strategies.

Oracle continues to differentiate through its multi-cloud partnerships, unique pricing advantages, and ability to handle diverse workloads. GPU consumption soared 336%, and the company introduced an AI supercomputer with 65,000 NVIDIA H200 GPUs, showcasing its technical prowess.

While Oracle remains on track for long-term growth, near-term challenges like FX headwinds, investment losses, and RPO fluctuations may temper momentum. However, its focus on expanding OCI capacity and leveraging AI demand positions it well for sustained growth into FY26 and beyond.