TLDR
- Oracle posted Q2 adjusted EPS of $2.26 versus $1.64 consensus, boosted by $2.7 billion Ampere stake sale
- Quarterly revenue of $16.06 billion fell short of $16.19 billion estimate despite 14% year-over-year increase
- Cloud infrastructure revenue surged 68% while legacy software business dropped 1% from prior year
- Shares dropped 11% after hours as Q3 guidance and negative $10 billion free cash flow disappointed
- Company projects $50 billion in annual capex with multiyear backlog reaching $523 billion
Oracle shares plunged 11% in extended trading after the database company reported second-quarter results that beat on earnings but missed on revenue. The stock decline pulled down other AI-related names including Nvidia and AMD.
The company posted adjusted earnings-per-share of $2.26, crushing Wall Street’s $1.64 consensus. However, most of that beat came from selling its Ampere chip stake to SoftBank for $2.7 billion. The transaction added 91 cents per share to earnings.
Quarterly revenue hit $16.06 billion, below the $16.19 billion analysts expected. The top line grew 14% compared to the same period last year.
Cloud revenue provided the growth engine. The segment generated nearly $8 billion, up 34% year-over-year. Cloud infrastructure revenue climbed 68% as Oracle expands its data center footprint.
The traditional software business moved in the opposite direction. Legacy software revenue declined 1% from last year as customers continue migrating to cloud-based solutions.
Guidance Falls Short of Expectations
Oracle’s multiyear backlog expanded to $523 billion, an increase of $68 billion from the prior quarter. New commitments from Meta and Nvidia contributed to the growth.
Chairman Larry Ellison emphasized Oracle’s position in the AI market. The company’s databases store large amounts of proprietary corporate data that can train AI models.
“Training AI models on public data is the largest, fastest growing business in history,” Ellison said. “AI models reasoning on private data will be an even larger and more valuable business.”
The company issued third-quarter guidance below Wall Street projections. Oracle expects adjusted EPS between $1.70 and $1.74 with revenue growth of 19% to 21%. Analysts had forecast $1.72 per share and $16.87 billion in revenue.
Operating margins compressed from 43.4% last year to 41.9% this quarter. The cloud business carries lower profit margins than traditional software sales.
Heavy Spending Raises Questions
Oracle’s cloud infrastructure push requires substantial capital investment. The company now expects $50 billion in full-year capital expenditures, up from the $35 billion disclosed in September.
Free cash flow turned negative by $10 billion during the quarter. That figure missed the Street’s already negative expectation of $5.2 billion.
CEO Clay Magouyrk addressed concerns about financing requirements. He pushed back against analyst estimates suggesting Oracle needs $100 billion to complete its cloud buildout.
“Based on what we see right now, we expect we will need less, if not substantially less, money raised than that amount,” Magouyrk said on the earnings call.
Oracle added $18 billion in debt in September. The company maintained it will preserve its investment-grade debt rating. Management highlighted alternative financing options including customers bringing their own chips or suppliers leasing equipment.
The stock has experienced volatility in recent months. Shares jumped 36% in September when Oracle revealed a massive backlog increase. The rally reversed after investors learned a single OpenAI contract drove most of the growth. The stock fell 33% following that disclosure.
The after-hours decline spread across AI stocks. Nvidia and AMD each dropped about 1%. Cloud provider CoreWeave slid more than 3%.
Oracle announced it will pursue a “chip neutrality” policy going forward. The company will continue purchasing Nvidia GPUs but plans to deploy whatever processors customers request. The shift follows the Ampere stake sale.
The company added cloud customers during the quarter including Airbus, Canon, Deutsche Bank, Panasonic, and Rubrik. The first Project Stargate data center opened in September as part of Oracle’s infrastructure expansion.
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