Oracle Beats in Fiscal Q2 Due to Strong Infrastructure and Applications Growth; Shares Overvalued

Oracle’s fiscal second-quarter results surpassed our expectations thanks to outperformance from Cerner and strength in infrastructure and applications. While the outlook for the next quarter was healthy, currency headwinds don’t appear to be subsiding anytime soon—and Oracle will undergo elevated capital expenditure over the next few quarters to further build out cloud regions amid ongoing demand. As a result, we are maintaining our fair value estimate at $67 per share. With shares up around 2% after hours, near $83, we think the narrow-moat negative-trend company is overvalued. We continue to believe that absolute growth and margin expansion are in the cards for Oracle over the next five years. However, we think that the market is overestimating the extent of such growth given increasingly competitive forces as customer churn becomes a significant risk as enterprises transition workloads to the cloud.