Oracle's Latest Results Show Cloud Slowdown Despite Expansion Efforts

On Monday after market close, Oracle Corporation ORCL reported its fiscal second quarter results. The software company that counts Microsoft Corporation MSFT among its partners, missed revenue estimates, with its shares falling more than 12% upon the results on Tuesday.

The latest results of the massive chips purchaser, both from Nvidia Corporation NVDA and Advanced Micro Devices Inc AMD reflected a cloud slowdown for the second consecutive quarter, igniting expansion concerns.

Oracle’s Quarterly Highlights

For the quarter that ended on November 30th, Oracle reported revenue rose 5% to $12.94 billion, coming short of the projected $13.05 billion. Cloud revenue expanded 25% to $4.8 billion, but growth slowed compared to prior quarter’s 30% rate which was also below expectations considering that Oracle has been making an effort to expand its cloud business to better compete with Microsoft, Amazon.com Inc AMZN and Alphabet Inc GOOGGOOGL-owned Google. Back in in April, Ofcom estimated that together, Amazon and Microsoft hold 60-70% of the cloud market through Microsoft Azure and Amazon Web Services. Therefore, the cloud dominance of Amazon and Microsoft is troubling both for Oracle as for regulators. However, the good news is that Oracle Cloud Infrastructure is growing at a faster rate than Amazon Web Services and Google. For its latest reported quarter, Amazon reported its third quarter AWS revenue grew 13% YoY. Amazon Web Services was actually the slowest grower during the third quarter, compared to Google and Microsoft. Microsoft outpaced its rivals in the third quarter on the cloud front, reporting Azure growth of 29% that accelerated from the second quarter’s 26%. Google trailed Microsoft with 22% cloud growth, but reporting a slowdown from second quarter’s 28%. Still, Google reported a growth rate that was double that of Amazon. Further segmenting Oracle’s cloud revenue, renting out computing power and storage contributed $1.6 billion while applications brought in $3.2 billion. 

Adjusted earnings per share amounted to $1.34, narrowly beating the LSEG estimate of $1.32.

After more than a year of acceleration, Oracle first reported a slowdown in September, with the latest reported quarter continuing the downward trend.

Analysts Were Not Pleased With Oracle’s Results

UBS analysts found that Oracle didn’t meet Cloud/OCI growth expectations for the second straight quarter, and again pinned the blame on the pace of infrastructure capacity build-outs. JPMorgan analysts are questioning Oracle’s ability to build out modern datacenter capacity quickly enough, with capacity limitation stopping Oracle from taking advantage of the “unlimited demand” for its infrastructure.

Yet, Oracle Executives Remain Positive

Yet, Oracle executives showed an unshaken confidence in the cloud infrastructure growth with demand being over the moon and the company continuing to expand its capacity, with the strategy including 100 new data centers.

Outlook

For the current quarter, Oracle guided for total revenue growth of about 6.5%, falling short of 7.5% that analysts estimated. Cloud sales are expected to accelerate compared to the just reported quarter, gaining about 27%. Oracle executives reiterated the company's 2026 fiscal year financial targets.

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