Oracle Cloud Infrastructure (OCI) Impact on Share Performance
Oracle Cloud Infrastructure (OCI) segment. witnessed a substantial 10.4% decline in its shares on Tuesday, driven by disappointing cloud sales and a gloomy outlook, raising concerns about the growth trajectory of the business poised to benefit from the generative AI boom, particularly in the Oracle Cloud Infrastructure (OCI) segment.
The company’s OCI unit, in competition with industry giants like Amazon Web Services and Microsoft Azure, experienced a slowdown in revenue growth over the past three quarters. Barclays analysts noted that the sluggish growth in Oracle Cloud Infrastructure (OCI) is a primary concern for investors.
Market Sentiment and Valuation Pressures
Despite Oracle’s shares having surged 40% this year, reflecting optimism around the increasing adoption of generative AI, the current setback places the company at risk of losing about $33 billion in market capitalization, with shares valued at $103.14.
Oracle attributed the weak results to supply constraints, with CEO Safra Catz acknowledging a skyrocketing demand for the company’s generative AI and cloud infrastructure services, particularly those within Oracle Cloud Infrastructure (OCI). However, concerns persist among analysts, leading at least four brokerages to reduce their price targets for Oracle following the results.
Piper Sandler brokerage expressed reservations about the company’s prospects, citing two consecutive quarters of cloud revenue shortfalls that undermine confidence in a sustained top-line growth recovery driven by cloud transition.
In the second quarter ending November 30, total cloud revenue, encompassing software, increased by 25%, falling short of Oracle’s anticipated 29%-31% rise. Factors contributing to the overall weak performance included diminished enterprise spending and fierce competition from larger players in the market.
Looking ahead, Oracle forecasted third-quarter revenue growth, incorporating health data software platform Cerner, in the range of 6%-8%. However, the mid-point of this forecast falls below analysts’ average estimate for growth, hovering around 7.6%, according to LSEG data.
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