Oracle (ORCL) Stock: Slides 11% as Revenue Disappoints and Guidance Comes in Light

TLDR

• Oracle reported Q2 adjusted EPS of $2.26, smashing the $1.64 estimate, but a $2.7 billion Ampere sale boosted results
• Revenue reached $16.06 billion, missing the $16.19 billion target despite 14% annual growth
• Multiyear backlog grew to $523 billion with new Meta and Nvidia commitments driving cloud expansion
• Stock plunged 11% after hours on disappointing Q3 guidance and revenue concerns
• Capital spending projected at $50 billion annually as Oracle pushes deeper into cloud infrastructure

Oracle shares tumbled 11% in after-hours trading despite crushing earnings expectations for its second quarter. The company posted adjusted earnings-per-share of $2.26, well above Wall Street’s $1.64 estimate.

Oracle Corporation, ORCL

The earnings beat wasn’t as clean as it looked. Oracle sold its stake in chip designer Ampere to SoftBank for $2.7 billion. That one-time gain added 91 cents per share to earnings.

Revenue told a different story. Oracle brought in $16.06 billion for the quarter, falling short of the $16.19 billion analysts expected. Year-over-year growth came in at 14%.

The cloud business continues its rapid expansion. Cloud revenue hit nearly $8 billion, up 34% from last year. Cloud infrastructure revenue jumped 68% as Oracle builds out data center capacity.

Meanwhile, the legacy software business declined 1% compared to last year. The shift away from traditional software sales continues to reshape Oracle’s revenue mix.

Backlog Grows But Guidance Disappoints

Oracle’s multiyear backlog reached $523 billion, up $68 billion from the previous quarter. The company added commitments from Meta and Nvidia during the period.

Founder Larry Ellison highlighted Oracle’s AI strategy on the earnings call. The company believes its massive database of private corporate data gives it an edge in the AI market.

Third-quarter guidance disappointed investors. Oracle forecast adjusted EPS of $1.70 to $1.74 and revenue growth of 19% to 21%. Analysts had expected $1.72 per share and $16.87 billion in revenue.

Massive Spending Raises Debt Concerns

The cloud infrastructure buildout requires massive capital investment. Oracle now projects $50 billion in full-year capital expenditures, up from $35 billion in September.

Free cash flow went negative by $10 billion for the quarter. That missed Wall Street’s already negative expectation of $5.2 billion.

New CEO Clay Magouyrk addressed financing concerns. Some analysts have projected Oracle needs $100 billion to complete its cloud expansion. Magouyrk said the actual requirement would be “substantially less.”

The company committed to maintaining its investment-grade debt rating. Oracle added $18 billion in debt in September. Credit default swap prices ticked up after the earnings release.

Operating margins continue to compress. The margin fell from 43.4% last year to 41.9% this quarter. Cloud has lower profit margins than traditional software.

Oracle’s stock has been volatile since September. Shares initially jumped 36% when the company revealed a $300 billion backlog increase. The rally reversed when investors learned most came from a single OpenAI contract.

The stock dropped 33% after that news and has struggled to recover.

The earnings sell-off spread to other AI stocks. Nvidia and AMD each fell about 1% in after-hours trading. Cloud provider CoreWeave dropped more than 3%.

Oracle announced a “chip neutrality” policy alongside earnings. The company will buy Nvidia GPUs but remain flexible about deploying whatever chips customers prefer. This shift came after selling its Ampere stake.

The first Project Stargate data center opened in September. Oracle executives said capital spending will remain elevated to fulfill cloud contracts with customers including Airbus, Canon, Deutsche Bank, and Panasonic.

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