Oracle Earnings: Cloud Capacity Catchups Leave More to Be Desired on Top Line; Shares Overvalued

Narrow-moat Oracle’s second-quarter results were nuanced, with the top line coming in lower than our expectations while non-GAAP EPS estimates came in slightly better. Shares are down 8% upon results, due to the underwhelming revenue. Capacity constraints within the OCI business were partially to blame. While Oracle’s OCI business is top of mind for more investors, we are more interested in how Oracle’s greater ERP and database software businesses are faring, as we continue to believe Oracle is facing far steeper competition in both realms as a result of cloud migrations. While our top-line forecasts remain largely unchanged, and still imply continuous market share declines in their ERP and database business, we have increased our estimates for longer-term GAAP margins. As a result, we are raising our fair value estimate to $83 per share from $76 per share. However, the increase still implies a significant overvaluation of the stock. As a result, we point investors to vastly more appealing stocks in our view such as Snowflake, which we value at $231 per share.