By Juby Babu and Stephen Nellis
Oracle recently reported its second-quarter earnings, and the news wasn’t as bright as expected. The company fell short of Wall Street’s revenue and profit estimates, raising concerns about a slowdown in spending on cloud services. This comes amid worries about a potential bubble in the artificial intelligence market.
After the announcement, Oracle’s shares dropped 5.5% in after-hours trading. The company did post an adjusted profit of $2.26 per share, which exceeded analyst expectations of $1.64. However, this figure was bolstered by a one-time gain of $2.7 billion from selling its stake in chip maker Ampere Computing.
While Oracle’s total revenue reached $16.06 billion, it still missed the average estimate of $16.21 billion. Additionally, its adjusted operating income of $6.7 billion fell short of the $6.8 billion that analysts anticipated.
Larry Ellison, Oracle’s chairman, noted that the company decided to sell its shares in Ampere as part of a new approach to use a variety of chips in its data centers. “We no longer think it is strategic to continue designing and manufacturing our own chips,” he explained. Ellison also indicated that Oracle would keep using Nvidia’s latest chips but wants to remain flexible to meet customer needs.
One positive aspect of Oracle’s report was its future contracts, which surged to $523 billion, a 14.94% increase from $455 billion in September. This growth was partly due to new cloud computing deals with OpenAI, which had previously sparked a rise in Oracle’s shares.
Oracle is investing in large data centers for OpenAI, which is also working with Broadcom on developing custom AI chips. After Oracle’s results, shares of both Nvidia and Broadcom saw slight declines, though they were down less than 1%.
The landscape for tech companies in the cloud and AI sectors is rapidly shifting. According to a recent survey by Deloitte, 60% of organizations report increased investments in AI. Yet, with Oracle’s mixed results, it raises questions about sustainability in this booming market.
In conclusion, while Oracle has strong future contracts and partnerships, the current earnings report signals caution. The reaction from the market illustrates that investors are wary about an ongoing trend of spending beyond sustainable limits in a fast-evolving tech landscape.
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operating profit, data centers, cloud services, Oracle chairman, Larry Ellison, LSEG, Wall Street estimates
