Key Takeaways
- Oracle shares rose to a record high Wednesday after the company announced cloud infrastructure deals with Microsoft, OpenAI, and Google, despite an earning miss.
- Analysts called Oracle’s bookings growth on artificial intelligence demand “impressive” and cited higher remaining performance obligations as a good sign for Oracle.
- However, they also voiced concerns about Oracle’s weak earnings results and rising capital expenditures to close the gap between supply and demand.
- Jefferies analysts noted that deals with Microsoft and Google may be positive for Oracle in the short term, but raised questions about the long term.
Oracle (ORCL) shares jumped to a record high in intraday trading Wednesday after the company announced it signed cloud infrastructure agreements with Microsoft (MSFT) and OpenAI, as well as Alphabet’s (GOOGL) Google Cloud, shifting focus away from quarterly earnings and revenue that missed estimates.
The stock was up over 11% at $137.86 as of 11:40 a.m. ET Wednesday, contributing to the stock’s over 30% gain since the start of 2024.
Anticipating AI-Driven Growth
Oracle suggested it could be well-positioned to benefit from the growing data needs of training and running AI models, especially with its contracts with Microsoft and OpenAI.
William Blair analysts said that Oracle reported “impressive bookings growth,” with AI-related demand as a key driver of that growth, and “over 30 AI sales contracts in the fourth quarter worth more than $12.5 billion in bookings,” including OpenAI.
The analyst added that “management noted that OCI cloud consumption growth of 53% in the fourth quarter could have been higher if data center capacity had been ready to accommodate more usage.”
Oracle did note that capital expenditures are expected to double in fiscal 2025 compared to fiscal 2024, to help close the gap between Oracle Cloud Infrastructure (OCI) supply and demand.
Melius Research analysts highlighted that “commentary cited Data Center capacity as the bottleneck.” They wrote “some of the pep in Oracle’s step could once again be due to prospects for increased purchases” of graphics processing units (GPUs) from Nvidia (NVDA) and networking from Arista Networks (ANET).
Analysts Warn Short-Term AI Gains May Only Take Oracle So Far
However, analysts also noted some concerns that Oracle’s short-term AI gains may only take it so far, given weaker-than-anticipated earnings and revenue for the fourth quarter and expectations for higher spending.
Jefferies analysts said things “didn’t add up,” noting that the disappointing fourth-quarter results and increased fiscal 2025 spending are discouraging signs.
The analysts said Microsoft and Google partnerships driven by AI demand “[won’t] last forever” as these hyperscalers “want to gain share of ORCL’s on-prem private data.” They added they “believe the big winner will be MSFT & GOOGL long-term,” with Oracle benefiting in the short term.
Bank of America analysts said “the RPO ramp suggest[s] that Oracle executed well, signing multi-year cloud deals,” but the “outsized growth coming from the hardware intensive OCI business” means “the economics in Oracle’s business are likely to come down over time.”
