Software giant Oracle reports quarterly earnings later today. Oracle stock has been in a funk, but its fiscal third-quarter report offers another chance for the tech giant to prove its potential as an artificial intelligence winner.
Oracle shares are down 11% from a six-month high near 130 that the stock reached in September of last year. Oracle had been gaining momentum prior to that, advancing 55% in the first nine months of 2023.
Several analysts upgraded their outlook for the 46-year-old company last year, based largely on its potential to grow its cloud-services offering as clients turned to it for AI products. But a pair of disappointing earnings reports have knocked shares back. Oracle's 33% gain over the past 12 months is roughly in-line with that of the S&P 500.
Here's what investors will be watching for in Monday's report:
By The Numbers
Overall, analysts project Oracle's adjusted earnings to climb 13% to $1.38 per share, according to FactSet consensus estimates. Sales are expected to rise 7% to $13.28 billion, according to FactSet.
Analysts project strongest growth for the company's cloud services and license support, which includes Oracle's subscription software offerings. Sales in that category are seen increasing 11.4% to $9.94 billion, according to FactSet estimates.
Further, Wall Street analysts see Oracle's net income rising 14% to $3.87 billion for the quarter.
Oracle's Cloud Growth
The growth for Oracle's Cloud Infrastructure business will be closely watched. OCI hosts the majority of Oracle's generative AI offerings. Following the company's last earnings report in December, Oracle founder Larry Ellison said AI is bringing a "gold rush" for technology spending in the cloud. That's potentially good news for OCI, which analysts see as vital to Oracle's long-term growth.
But Oracle shares also fell sharply following its earnings report in December. The main problem: Revenue growth for Oracle's cloud infrastructure business slowed for a second straight quarter. Sales for Oracle's Cloud Infrastructure business grew 52% to $1.6 billion in its November period, compared with 66% in the August quarter and 76% in the May quarter.
OCI is still growing faster than offerings from rivals Amazon, Microsoft and Alphabet's Google. But Oracle is already playing catch-up. Oracle holds less than 5% of the cloud market, according to a February report from Synergy Research Group. Synergy estimates Amazon captured 31% of cloud market sales in the final months of 2023, compared with 24% for Microsoft and 11% for Google.
Oracle Stock: Watching CapEx
For Oracle's AI push, "all eyes will be on the CapEx number in the quarter," Barclays analyst Raimo Lenschow wrote in a recent client note. In December, the company said it had strong demand for its cloud business related to AI. The challenge was scaling up to meet it.
But the buildout has been challenged by some bottlenecks, as described by Oracle. That includes acquiring enough high-power computing chips, such as those sold by Nvidia.
On a related note, Oracle's capital expenditures of $2.4 billion for the first six months of its fiscal year were below expectations. But Chief Executive Safra Catz in December reiterated the company's guidance for $8 billion in capital expenditures for the May-ending fiscal year, indicating the company intends to step up spending.
"CapEx will likely be the more interesting number to focus on, as we need to see a meaningful ramp here to support cloud/AI growth in the quarters to come." Lenschow wrote. He holds a positive overweight rating on the stock with a 140 price target.
Technical Analysis For Oracle Stock
Meanwhile, IBD Stock Checkup shows that Oracle has a so-so Composite Rating of 69 out of a best-possible 99. The rating means Oracle stock currently outperforms 69% of all stocks based on fundamental and technical stock-picking criteria.
In addition, shares have a Relative Strength Rating of just 50 out of 99. The RS score measures how a stock's price performance over the last 52 weeks holds up against other stocks in IBD's database.
Beyond that, Oracle stock has an Accumulation/Distribution Rating of C. That rating measures daily price and volume changes in institutional ownership of a stock for the prior 13 weeks. A grade of C indicates roughly equal levels of buying and selling by institutions.
