Oracle
stock fell Tuesday as the market digested the software company’s slowing cloud growth. Wall Street analysts are still skeptical as to whether Oracle’s attempts to compete in data-center infrastructure with bigger rivals will pay off.
Oracle
was down 9.3% in premarket trading at $104.30 following the release of its fiscal second-quarter results late on Monday.
Analysts noted Oracle’s cloud revenue growth of 25% was down from 29% the previous quarter and said questions remained about its strategy for future acceleration. Oracle is building 100 new data centers as it said demand was outstripping capacity for its Oracle Cloud Infrastructure businesses.
“For the second straight quarter, Oracle didn’t meet Cloud/OCI growth expectations and again pinned the blame on the pace of infrastructure capacity build-outs, which is disappointing and tough to get visibility into,” UBS analyst Karl Keirstead wrote in a research note.
Keirstead cut his target price on Oracle to $125 from $135, although he kept a Buy rating on the stock.
Oracle has said it can build smaller data centers more cheaply than market leaders
Amazon.com,
Microsoft
and Google-parent
Alphabet.
However, the buildout is a potentially expensive investment while it grapples with integrating electronic health records company Cerner, which it acquired in 2022.
“We believe HSD [high single digit percentage] growth for the company may prove unsustainable with Cerner integration headwinds and increasing competition in the datacenter market,” D.A. Davidson analyst Gil Luria wrote.
Luria kept a Neutral rating and $105 target price on Oracle stock.
Oracle is hoping its strategy will be justified by the increased demand for cloud computing caused by the growth of artificial-intelligence technology.
“While Oracle is experiencing solid demand momentum in its OCI [Oracle Cloud Infrastructure] business, we believe the stock is already embedding expectations for revenue acceleration and generative AI tailwinds,” wrote William Blair analyst Sebastien Naji in a research note.
Naji kept a Market Perform rating on the stock with no target price.
However, some analysts remained confident that Oracle can pursue its cloud strategy successfully.
”Our view is that if OCI growth can stabilize in the 50% range over the next few quarters, the risk/reward skews materially to the upside at current levels,” Evercore analyst Kirk Materne wrote in a research note.
Materne kept an Outperform rating on the stock and a $130 target price.
Write to Adam Clark at [email protected]
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