Oracle shares are taking a hit in the aftermarket following another disappointing quarterly report. While earnings at the cloud infrastructure company edged out Wall Street estimates, sales once again came up short with three of the company’s four main operating segments underperforming, including its crucial cloud services division. Revenue for the second fiscal quarter of 2024 (ended Nov. 30) increased 5% year over year to $12.94 billion, missing the consensus analyst estimate of $13.05 billion, according to data compiled by LSEG. Adjusted earnings-per-share (EPS) of $1.34 gained 11% from the year-ago period, outpacing the $1.32 predicted by analysts. Bottom Line We do believe management is doing good things with its second-generation Oracle Cloud Infrastructure (OCI). After all, it was the first big company to offer Nvidia ‘s ground-breaking DGX Cloud supercomputing AI service. Microsoft even tapped Oracle for additional capacity. Plus, there has been an increase in Oracle mentions by chief information officers when asked about future IT spending, according to a recent survey by Piper Sandler. It’s a strategy that could pay off over the long term. On the conference call with investors Monday, management explained that the way OCI was designed — unused resources can be reallocated to other clients and customers are charged only for what they use when they use it — has the potential for a much higher gross profit margin. However, the issue is opportunity cost and where the stock goes in the nearer term. We just aren’t seeing the bookings convert to revenue at a swift enough pace. We defended the company after last quarter’s miss. Our view then was that while the numbers weren’t great, we had heard enough positive commentary to stick with the stock, believing Oracle will ultimately become an AI winner. That is likely still the case. Oracle’s OCI stands to benefit greatly from AI demand, but Monday’s report has us scrutinizing the timing more intensely. The…
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