Oracle Shares Tumble 14% as Revenue Miss Clouds Record AI Bookings
Investors focus on slowing top-line growth and hefty AI spending, momentarily overlooking a record $97 billion in future performance obligations.
Oracle Corp. shares plunged more than 13% on Thursday after the company's second-quarter revenue fell short of Wall Street estimates, fueling concerns about the hefty cost of its artificial intelligence ambitions. The sell-off came despite the company reporting record-breaking demand for its cloud infrastructure and a massive backlog of future sales.
The Austin-based technology giant posted total quarterly revenues of $14.1 billion, an increase of 9% year-over-year but below analyst expectations. The shortfall overshadowed a 10% rise in non-GAAP earnings per share to $1.47. In morning trading, the stock fell to nearly $192 a share, wiping out over $90 billion in market value and putting it on pace for one of its worst single-day drops.
The market's sharp rebuke centered on the immediate top-line results, particularly from the Cerner health business, and the rising capital expenditures needed to compete in the cloud computing race. However, the results presented a stark contrast between current performance and future potential. Oracle’s Remaining Performance Obligations (RPO), a key metric representing contracted future revenue, surged 50% to an unprecedented $97 billion.
This record backlog was driven by what the company described as historic demand for its AI and cloud infrastructure services. According to Oracle's official Q2 earnings announcement, its Cloud Infrastructure (IaaS) revenue grew by a staggering 52%.
Company executives focused on the enormous growth in future business. “The demand for our Cloud Infrastructure and Generative AI is insatiable,” said Oracle CEO, Safra Catz. “Our RPO has soared to $97 billion, and we are racing to build data center capacity to meet the accelerating demand. This quarter alone, Oracle signed contracts to sell over $2.5 billion of additional training capacity in our Gen2 Cloud, and our total capacity-sold-but-not-yet-deployed now totals over $7 billion.”
The results revived a broader debate among investors about the immense, front-loaded costs of the AI boom and when those investments will translate into sustained profitability. As noted by Bloomberg, Oracle's report has rekindled worries across the sector about lofty AI spending levels.
Oracle Chairman and CTO Larry Ellison highlighted significant new deals, stating, “In Q2, we signed a number of billion-dollar-plus cloud infrastructure contracts, including one with the world’s largest sovereign wealth fund. The scale and performance of Oracle’s Gen2 AI Cloud Infrastructure is a primary reason that our AI and OCI businesses are growing at a record-breaking rate.”
Despite this long-term optimism from management, Wall Street reacted with caution. Analysts were left to weigh the immediate revenue slowdown against the enormous pipeline of contracted business. The sentiment was one of disappointment mixed with long-term intrigue, as CNBC reported that many analysts cut their near-term price targets while maintaining a bullish long-term outlook. With an average analyst price target still above $330, the disconnect between the stock's current price and its perceived potential is significant.
Looking ahead, investors will be closely watching whether Oracle can efficiently convert its massive $97 billion RPO backlog into recognized revenue. The company’s ability to manage capital expenditures while rapidly building out its data center capacity will be critical as it competes with giants like Amazon Web Services, Microsoft Azure, and Google Cloud for dominance in the AI era. The coming quarters will determine if Thursday's sell-off was a warranted reaction to slowing growth or a missed opportunity to buy into a long-term AI powerhouse.