Oracle shares moved firmly lower in early Tuesday trading after a disappointing set of quarterly earnings triggered a host of price target and rating updates on Wall Street.
Oracle (ORCL) shares have been the outstanding performer in the cloud-computing space, rising more than 80% on the year heading into last night's second quarter earnings update and adding around $200 billion in market value.
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Anchored by its Gen2 cloud offering tied to partnerships with Nvidia (NVDA) , Google (GOOGL) and Microsoft (MSFT) , the group is also seeing solid growth from other key business lines, thanks in part to a surge in artificial-intelligence investment.
A new deal with Meta Platforms (META) , following on from a similar pact with Amazon Web Services (AMZN) , is also slated to add to overall cloud revenue, Oracle said, as it scales its offerings over the biggest hyperscaler systems.
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"Our multicloud agreements with Microsoft, Google and AWS provide customers more choice in how they can migrate their Oracle databases to the cloud. And our strategic [software-as-a-service] applications continue to grow rapidly," CEO Safra Catz told investors on a conference call late Monday.
"We are also seeing more of our industry-based cloud applications come online, which immediately contribute to revenue growth," she added.
Spencer Platt/Getty Images)
However, the stock's meteoric rise this year and the hype that surrounds virtually every stock in the AI space had set a high bar that the group's fiscal second quarter earnings were unable to meet.
Lofty expectations
Adjusted earnings of $1.47 a share were a penny light of Wall Street's consensus estimate, while overall revenues rose 9% from the year-earlier quarter to $14.06 billion, just shy of Wall Street's $14.11 billion forecast.
Cloud revenue, which makes up just under half the overall top line, rose 24% from a year earlier, while hardware and software sales slipped and licensing revenue was essentially flat.
The group's overall backlog, including unbilled revenue — known by analysts and investors as remaining performance obligations — also fell from the prior-quarter tally of $99 billion, marking the first sequential decline in more than a year.
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“We continue to see excellent demand for our cloud services, which you see in our RPO growth," Catz said.
"And while this growth is stellar, our pipeline is actually growing even faster, and our win rates are growing higher, with the recent win at Meta being a prime example of why we expect that our RPO balance will climb again in Q3," she added.
In a note published Tuesday, KeyBanc Capital Markets analyst Jackson Ader highlighted the RPO slowdown, affirming an overweight rating and $200 price target on Oracle shares following last night's update.
Oracle RPO in focus
"What made this quarter different was that there wasn't a concurrent build of remaining performance obligation as there has been in prior periods," he said.
"Before, revenue may have been lackluster but RPO had jumped, so when we looked at one number and frowned, we could quickly find another number and say, 'Ahhh there's the proof of demand,'" he added.
"Signing Meta to an AI deal in the early goings of 3Q25 helps, and management expects RPO to rebound nicely in the third quarter, but the [Oracle cloud infrastructure] business (and the share price) has rewritten the expectations," he said.
CFRA analyst Angelo Zino, who also kept his rating and price target unchanged at market overweight and $205 a share, considered the RPO gain of 49% as "providing stability" to the Oracle narrative. He added that Nvidia's ramp of its Blackwell next-generation chips would likely support near-term demand.
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"Cloud Application (software as a service) rose 10%, with healthy results from both NetSuite and Fusion, while the shift to Agentic AI offers new AI use cases/upside," Zino said. "Still, elevated net debt position of $77 billion and cash usage likely limit our view for multiple expansion."
Oracle repeated its view that capital spending, which rose to $4 billion over the three months ended in September, will likely double in the current fiscal year as it continues to embed its database infrastructure into cloud offerings from larger rivals such as Microsoft and Amazon.
Brad Sills of Bank of America, who maintained a neutral rating and $195 price target after the Q2 report, noted that Oracle's spending is likely to affect profit margins.
AI demand drives growth
"We acknowledge Oracle is headed toward revenue acceleration," Sills said. "However, with a higher mix of cloud revenue, our concern is that scale on [capital spending] could be more challenging over time given the outsized growth from database on [Oracle cloud infrastructure] versus apps and cross-sell of other high value cloud infrastructure services seen by hyperscalers."
Mizuho analyst Siti Panigrahi was unfazed, however, by the surge in capex, saying that "robust AI-related demand continues to outstrip supply" for Oracle over the near term.
"To address supply constraints, Oracle is aggressively expanding its capacity, with additional resources expected to come online by late Q3," said Panigrahi, who raised his price target on the stock by $25 to $210 per share.
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"With Oracle expanding both supply capacity and cloud regions, we expect strong [Oracle cloud infrastructure] growth, which should be ... the most important catalyst that drives shares to rerate," he added.
Stifel analyst Brad Reback was also bullish, lifting his price target $20 to $175 a share and arguing that "solid revenue growth is sustainable as AI infrastructure bookings strength converts into training revenue and hyperscaler database partnerships scale medium-term."
Oracle shares were marked 7.35% lower in recent trading to change hands at $176.46 each, a move that still leaves the stock up nearly 70% for the year with a market value of around $490 billion.
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