Oracle Reports Lower-Than-Expected Revenue Due to Sluggish Cloud Spending

Oracle (ORCL.N) has provided a revenue projection for the current quarter that falls below Wall Street's expectations. The company also narrowly missed revenue expectations for the first quarter due to economic challenges that have impacted cloud spending by businesses. As a result, Oracle's shares experienced a 9% decline in extended trading.

While Oracle witnessed a surge in cloud demand during the pandemic, the changing economic landscape has prompted businesses to reconsider their digital transformation strategies.

This shift has posed challenges for Oracle as it strives to compete in a market dominated by larger rivals like Amazon Web Services (AMZN.O) and Microsoft (MSFT.O). However, analysts suggest that the growing adoption of artificial intelligence (AI) applications could potentially benefit Oracle's cloud infrastructure business. Oracle's networking technology advancements are well-suited to handle AI workloads.

Oracle's Chairman and CTO, Larry Ellison, highlighted the company's progress in the AI space, stating that AI development firms have committed to purchasing over $4 billion of capacity in Oracle's Gen2 Cloud. This represents a significant increase from the end of the previous quarter. Ellison also revealed that Tesla CEO Elon Musk's AI startup, xAI, has signed a contract to utilize Oracle's Gen2 Cloud for training AI models.

Furthermore, Ellison announced that all nine utility companies owned by Berkshire Hathaway will be transitioning to Oracle's Fusion Cloud applications, demonstrating the company's ongoing efforts to expand its client base.

Despite these developments, Oracle's shares have faced some volatility. Nevertheless, the company has seen its shares gain approximately 55% year-to-date.

Oracle's outlook for the second quarter forecasts revenue growth in the range of 5% to 7%, which falls below the average estimate of 8.2% among analysts, as per LSEG data. Additionally, the company expects adjusted earnings per share to be between $1.30 and $1.34, slightly higher than the expected $1.33. The first-quarter revenue totaled $12.45 billion, slightly below the anticipated $12.47 billion.

Excluding exceptional items, Oracle reported earnings of $1.19 per share, surpassing estimates of $1.15.