TL;DR:
- Oracle’s stock declined by 6% to $101.85 after hosting an AI forum.
- Analysts remain positive about Oracle’s cloud infrastructure services and demand.
- Supply constraints, not demand issues, were cited as a challenge for Oracle’s OCI business.
- Analysts believe that the AI boost to OCI is a matter of timing.
- JPMorgan warns that revenue conversion from the $4 billion AI backlog may take longer.
- Oracle’s stock has faced challenges following its Q1 earnings report.
- Despite recent setbacks, Oracle maintains a strong position in the market.
Main AI News:
In the wake of Oracle’s recent artificial intelligence (AI) forum, Oracle’s stock took a significant hit, declining by 6% to close at $101.85 on the stock market. This downturn continues a streak of losses, surpassing the setbacks experienced by peers in the database software industry on a volatile trading day.
During the Oracle AI Executive Forum, which featured prominent company executives, including Chairman Larry Ellison, the focus was on harnessing AI for enhanced productivity in businesses today. The event also served as an opportunity to provide customers of Oracle Cloud Infrastructure (OCI) with updates on the company’s products.
Analysts who attended the event left with an overall positive impression, particularly regarding the demand for Oracle’s cloud infrastructure services. OCI plays a pivotal role in Oracle’s ambitions to expand its presence in the cloud market and is home to the company’s primary generative AI offerings for businesses.
Karl Keirstead, an analyst at UBS, emphasized that Oracle’s recent commentary clarified that supply constraints, rather than demand issues, were the primary challenge facing its OCI business. This clarification addressed a key investor concern following the company’s earnings report in September. Keirstead highlighted several bottlenecks, with a notable emphasis on facilities, power, and network infrastructure, in addition to GPU availability. He also pointed out that other tech giants like Microsoft and Amazon might be grappling with similar infrastructure expansion challenges. Keirstead’s outlook on Oracle stock remains positive, underlining the belief that the AI boost to OCI is a matter of timing, not if it will happen.
However, JPMorgan analyst Mark Murphy expressed concerns that the supply challenges could result in a longer-than-expected conversion of bookings into revenue. Murphy’s analysis suggested that some Street assumptions about revenue conversion from the $4 billion AI backlog might be overly optimistic. He noted that it was unlikely that any significant portion of this backlog would be recognized in the current fiscal year, FY24, due to constraints in modern Gen AI data center construction. Nonetheless, Oracle had previously acknowledged the extended timeline for its infrastructure buildout. There remains the possibility of adjustments in OCI’s composition for FY24, with some expected revenue spilling over into FY25, given that Oracle’s fiscal year ends in May.
Oracle’s stock has faced a tumultuous few months, with its shares rising approximately 25% over the year but experiencing a decline following its Q1 earnings report on September 11. The report led to one of Oracle’s worst-ever trading days, with the stock plummeting more than 13% due to revenue guidance falling short of expectations. Additionally, the company reported a 30% year-over-year growth in cloud revenue, marking a slowdown from the previous quarter’s 54% growth rate. Since that report, Oracle’s stock has declined by nearly 20%.
Despite recent challenges, Oracle still holds a strong position in the market. The IBD Stock Checkup tool rates Oracle with a Composite Rating of 90 out of a possible 99, indicating that it currently outperforms 89% of all stocks based on fundamental and technical criteria. Furthermore, Oracle’s shares boast a Relative Strength Rating of 92 out of 99, signifying the stock’s resilience in comparison to other equities in the IBD database.
Conclusion:
The decline in Oracle’s stock following its AI event underscores the challenges in expanding AI infrastructure. While analysts are optimistic about Oracle’s cloud services and AI prospects, supply constraints and delays in revenue conversion may impact short-term performance. However, Oracle’s strong market position and ongoing commitment to AI indicate long-term growth potential in the cloud industry.
