Oracle’s share price has taken a tumble after missing revenue expectations, despite sales growing.
The cloud applications and infrastructure leader’s total revenue for Q2 was $12.94 billion up four percent, but again this fell short of analyst expectations of $13.05 billion.
Oracle saw $9.7 billion of sales fall into its cloud services and license support unit, which saw sales climb 12 percent.
It is not a black-and-white picture, however. Demand for Oracle Cloud infrastructure has still increased overall, with remaining performance obligations (RPO) reaching $65 billion.
Oracle CEO Safra Catz shared his plans to ensure it meets this demand during the company’s quarterly earnings call: “Oracle is in the process of expanding 66 of our existing cloud data centers and building 100 new cloud data centers.
“We have to build 100 additional cloud data centers because there are billions of dollars more in contracted demand than we currently can supply.
“Cloud infrastructure demand is huge and growing at an unprecedented rate. In the next few weeks, we expect to sign a couple more billion-dollar Cloud Infrastructure contracts.”
There are some interesting comparisons to make with Oracle’s results this time last year.
Picking up on Catz’ expectation of major contract signings soon to take place, Oracle also announced multiple billion-dollar cloud infrastructure customer wins this time last year, which then included FedEx, Deutsche Bank, the Tokyo Stock Exchange, and more.
At that time, these deals propelled Oracle’s revenue growth up two percent compared to the previous quarter, and that is despite the market headwinds that it was facing, which had even caused Oracle to announce layoffs.
The tech industry was also in a worse financial state in December 2022 than it is now, although Oracle is not the only company to be affected by the current market conditions, with Alphabet also reporting the slowest cloud growth for 11 quarters.
Competition is another factor that may help to explain the difference in its year-to-year results. The boom in AI technology has led to massive investments, such as Amazon’s commitment to invest $100 million into a generative AI center, which has rapidly become a central consideration of cloud-based portfolios.
Oracle has not had its head in the sand when it comes to AI innovations. In September, it released six new GenAI-powered contact center capabilities, including assisted agent responses, search augmentation, customer engagement summaries, and others.
Moreover, Oracle’s cloud technology was recently recognized as a leader in the 2023 Gartner Magic Quadrant for strategic cloud platform services.
Nevertheless, the level of competition in AI is fierce as tech giants like Microsoft and Google go all out, eclipsing smaller companies in the process.
Fortunately, AI is not everything, as Larry Ellison, Chairman and Chief Technology Officer at Oracle, explained:
The demand for cloud infrastructure services and new Oracle Cloud data centres is broad-based, driven not only by generative AI customers but also by nation-states buying sovereign Oracle Cloud data centres, plus large banks, telecommunications companies, and industrial companies buying dedicated cloud data centres — dedicated Oracle Cloud data centres.
“And perhaps most interestingly, demand from other hyperscalers and other cloud service providers co-locating and connecting their clouds with Oracle Cloud data centers.”
According to MarketWatch, share prices have dropped around ten percent since Oracle published its Q2 2024 earnings results on Monday.
