Oracle shook off fears about AI spending, but its stock still loses ground

By Barbara Kollmeyer and Hannah Pedone

'Several of Oracle's bear cases were addressed head on' in the latest earnings report, according to an analyst

Oracle won praise from Wall Street analysts after its earnings report.

Analysts said Oracle helped dispel a string of investor concerns with its latest earnings report - but the stock's postearnings momentum didn't last long.

Shares of Oracle (ORCL) rose as much as 8.5% earlier on Friday, but later reversed course end the day down 1.7%.

While there's no doubt that Oracle is growing, a key issue for investors has been the level of spending required to drive that growth. But Piper Sandler analyst Billy Fitzsimmons noted after Thursday's report that the company opted to maintain its forecast for capital expenditures, or money put toward things like data centers and hardware. That's significant because there were fears that management would lift its spending outlook.

"Several of Oracle's bear cases were addressed head on," Fitzsimmons said in a note to clients.

Bernstein analyst Mark Moerdler added that investor interest in Oracle's stock is high, and that those who don't currently own shares are looking "to understand the opportunity and gain confidence the bear concerns are wrong." To that end, the latest report boosted "clarity" around a positive investment case for Oracle's stock, he said.

"Oracle is not only executing well but also communicating better, with more details, clarity and increased confidence," Moerdler wrote. "The company is also diversifying its customer base while increasing RPO, which does not require meaningful additional cash requirements." RPO refers to remaining performance obligations, or the dollar value of contracted services that have yet to be delivered to customers or booked as revenue.

StoneX analyst Yi Fu Lee wrote in a Friday note that a big takeaway from Oracle's earnings was that Oracle Cloud Infrastructure saw 121% growth from the prior year. "Oracle continues signing large-scale AI-related contracts while emphasizing that customer demand still exceeds available supply," he wrote.

Lee said that the report shows that "enterprise AI continues moving beyond experimentation and into production deployment."

J.P. Morgan analysts pointed to an August quarter that they said eased key worries around data-center delays. Analysts led by Samik Chatterjee noted 850 megawatts of artificial-intelligence computing power were delivered in the quarter, three times what was seen in the May quarter. They also highlighted $30 billion-plus in new AI contracts.

"We got both better in-period execution and future-period bookings than anticipated. Check and check," observed Jackson Ader at KeyBanc Capital Markets.

Yet some analysts still had lingering concerns - especially surrounding gross margins, which measure the portion of revenue that a company retains after covering the costs of making its products. Morgan Stanley analyst Sanjit Singh said he wanted to see more stabilization of those margins as well as details on when new data centers will be up and running.

The next major event for Oracle is an analyst day expected to take place in October.

-Barbara Kollmeyer -Hannah Pedone

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-11-26 1645ET