Oracle’s fiscal first-quarter results, which exceeded analysts’ expectations, were driven by businesses’ growing interest in developing generative artificial intelligence applications, leading to increased demand for cloud services.
Although Oracle Corporation’s (NYSE:ORCL) shares initially dipped more than 3% in after-hours trading after the report, they fell as much as 9% following a cautious outlook provided by management during the earnings call for the second quarter.
Oracle reported adjusted earnings per share (EPS) of $1.19 on revenue of $12.45 billion, surpassing analysts’ projections of $1.15 EPS and $12.44 billion in revenue.
Cloud services and license support revenues experienced a 13% year-on-year increase, reaching $9.5 billion. In contrast, cloud license and on-premise license revenues saw a 10% decline, totaling $0.8 billion.
Oracle highlighted that AI development companies had committed to purchasing over $4 billion of capacity in Oracle’s Gen2 Cloud, doubling the amount booked by the end of Q4.
The adjusted operating margin increased from 39% to 41% compared to the same period last year.
During the earnings call, Oracle projected total revenue growth of 5-7% at current currency rates and 3-5% in constant currency. Cloud revenue was expected to grow at 28% in constant currency, slightly below the 29% reported for Q1. This contributed to the decline in the stock’s value post-earnings.
The management attributed the soft cloud outlook to the rapid transition of Cerner (NASDAQ:CERN) to the cloud, resulting in short-term challenges as customers shift from upfront licensed purchases to cloud subscriptions.
Adjusted EPS for the next quarter was forecasted at $1.29 (with a variance of up to 2 cents), surpassing the consensus estimate of $1.25.
Oracle’s financial analyst meeting is scheduled for the following week, where it may provide updates on its mid-term outlook.
Goldman Sachs analysts noted that Oracle’s Q2 outlook fell short of high expectations, while Guggenheim analysts remained bullish, emphasizing that Oracle’s growth prospects in SaaS, OCI, and cloud database migration supported their Buy rating and Best Idea designation.