Oracle Earnings Expected to Elicit Milder Response Compared to Last Quarter
Fiscal second-quarter earnings for Oracle are approaching, and analysts anticipate a more subdued reaction compared to the excitement of previous reports. In September, Oracle’s remarkable AI-related sales backlog soared to $455 billion, largely fueled by partnerships with OpenAI, causing their stock price to surge by over 20%. This spike momentarily positioned Oracle’s co-founder as the world’s richest individual, surpassing Elon Musk.
Current Market Sentiment
However, the landscape has shifted significantly since then. Oracle’s stock has since lost all value tied to its OpenAI engagements, resulting in a staggering $300 billion reduction in shareholder wealth. Investors are now viewing Oracle’s once-celebrated backlog as a potential liability.
- September AI-related sales backlog: $455 billion
- Peak stock increase: Over 20%
- Market value loss: $300 billion
Upcoming Earnings Expectations
Wall Street forecasts indicate strong performance for Oracle’s fiscal second quarter, with a predicted revenue increase of 15.2% to $16.19 billion. Adjusted earnings per share are projected to rise 11.6% to $1.64, aligning closely with previous guidance.
Concerns Over Future Investment
Despite these positive figures, uncertainty lingers among investors, primarily around Oracle’s capital expenditures. Analysts, including Bernstein Research’s Mark Moerdler, highlight worries about the implications of Oracle’s heavy investment in servers and data centers, expected to cost around $17 billion annually by 2027.
This substantial spending has raised alarms regarding Oracle’s ability to manage its debt, creating hesitation in the bond market. Moerdler emphasized the need for clarity on capital expenditures and associated cash flows, suggesting that plans to lease equipment instead of buying could stabilize investor confidence.
OpenAI’s Impact
Oracle’s close relationship with OpenAI also poses significant risks. OpenAI has committed to paying Oracle $300 billion for cloud computing resources, but if OpenAI fails to meet these obligations, Oracle could face dire financial ramifications. As competition intensifies, especially with Alphabet’s emerging Gemini model, investor confidence in OpenAI’s prospects has been shaken.
Market analysts point out that the uncertainty surrounding OpenAI’s future and the impact of Oracle’s capital expenditures are key reasons for the sharp downturn in Oracle’s stock. To restore investor trust, Oracle must begin to address these pressing issues.
