Oracle Shares Fall as Earnings Report Fails to Calm AI Fears

Shares of cloud computing giant Oracle experienced a significant downturn on Wednesday, falling over 10% in after-hours trading following a revenue shortfall.

The company reported revenue of $16.06 billion for the three months ending in November, slightly below the $16.21 billion analysts had predicted. Despite this miss, Oracle’s overall revenue growth stood at 14%, fueled by a remarkable 68% increase in sales from its Artificial Intelligence (AI) division, Oracle Cloud Infrastructure (OCI).

OCI has become a key provider of infrastructure for major AI developers, contributing to a surge in Oracle’s share price earlier in the year. However, Wednesday’s results have reignited concerns about a potential AI bubble, prompting investors to reassess the sustainability of the sector’s growth.

In September, Oracle secured a landmark deal with OpenAI, the creators of ChatGPT, committing to provide $300 billion in computing power over the next five years. This agreement briefly propelled Oracle Chairman and Chief Technology Officer Larry Ellison to the top of the world’s richest individuals list.

Since reaching its peak three months ago, Oracle’s stock has shed 40% of its value, although it remains more than a third higher than its value at the start of the year. Mr. Ellison acknowledged the rapidly evolving nature of AI technology in a statement released on Wednesday.

“There are going to be a lot of changes in AI technology over the next few years and we must remain agile in response to those changes,” he wrote.

Mr. Ellison also signaled a willingness to diversify Oracle’s chip suppliers, stating, “We will continue to buy the latest GPUs from Nvidia, but we need to be prepared and able to deploy whatever chips our customers want to buy.” This approach, dubbed “chip neutrality,” aims to provide clients with greater flexibility.

The company’s extensive AI infrastructure arrangements have drawn scrutiny, with some analysts suggesting the possibility of ‘circular financing’ – where companies essentially fund purchases of their own products. Emarketer analyst Jacob Bourne commented on the situation.

“Oracle’s earnings arrive as investors weigh whether its massive OpenAI partnership might mean overexposure with a customer currently in the spotlight over profitability concerns,” Bourne said following the quarterly report release.

Bourne also highlighted growing concerns about the debt Oracle has accumulated to finance the construction of new data centers. However, Cory Johnson, Chief Market Strategist at Epistrophy Capital Research, offered a more optimistic view.

“This was nothing but a great quarter for Oracle,” Johnson stated. “Revenue growth of 14% is accelerating.” He noted that Oracle has secured $385 billion in contracts over the past six months, including deals with Meta and Nvidia. “But AI sentiment is so bad right now, that’s seen as a bad thing for Oracle,” he added.

In September, Oracle completed a record $18 billion bond sale, one of the largest ever undertaken by a technology company. Bourne cautioned, “Although Oracle’s shares are buoyed by its September surge, this revenue miss will likely exacerbate concerns among already cautious investors about its OpenAI deal and its aggressive AI spending.”

Separately, the Ellison family, known supporters of former US President Donald Trump, have recently acquired Paramount and are pursuing a takeover of Warner Brothers Discovery.

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