Gambling against AI? Oracle (ORCL.US) Q2 cloud revenue is slightly lower than expected, and daily orders can't hide investors' concerns that it has collapsed more than 10% after the market

The Zhitong Finance App learned that Oracle (ORCL.US) released its second fiscal quarter report after the market on December 10 EST. The report showed that its spending on artificial intelligence data centers and other equipment increased dramatically, but the rate at which these rising investments were converted into cloud business revenue fell short of investors' expectations, and the stock price plummeted by more than 10% in after-hours trading.

After closing at $223.01 during the regular trading session in New York, the stock fell to a low of $197.25 in after-hours trading. Since September 10, investors' enthusiasm for the Oracle Cloud business drove the stock price to a record high, the stock has fallen by about one-third cumulatively. As of press release, the stock plummeted 11.17% after the market to $198.1.

In the second fiscal quarter ending November 30, the company's total revenue increased 14% to US$16.1 billion, which is basically the same as the average market forecast. Earnings per share excluding selected items were $2.26, exceeding average market expectations.

Among them, the company's cloud software application business grew 11% to US$3.9 billion. This is the first time that Oracle's cloud computing infrastructure division's revenue has surpassed the application business.

Cloud computing sales increased 34% to $7.98 billion, with revenue from the much-publicized infrastructure business growing 68% to $4.08 billion. Both figures fell slightly short of analysts' expectations.

The company said the profit growth benefited from the sale of its holdings in chipmaker Ampere Computing, and the deal generated pre-tax revenue of $2.7 billion in the current period. Ampere, which was supported by Oracle in its early years, was acquired by Japan's SoftBank Group last month.

Oracle, famous for its database software, has recently made headway in the competitive cloud computing market. The company is building data centers on a large scale to support OpenAI's AI work, while listing companies such as TikTok and Meta Platforms (META.US) under ByteDance as major cloud customers.

According to a statement issued on Wednesday, in the quarter ending November 30, the “remaining performance obligation” index, which measures the size of orders, soared to $523 billion, an increase of more than fivefold. According to the data, analysts' average estimate is $519 billion.

Despite this, Wall Street still has doubts about the cost and time requirements for building such large-scale AI infrastructure. Oracle has borrowed huge debts and promised to lease multiple data center sites.

“Oracle itself is facing increasingly strict scrutiny, and concerns about its debt-driven data center construction, business concentration risk, and AI spending uncertainty are growing,” said Emarketer analyst Jacob Bourne. “This fall short of revenue expectations may heighten the concerns of already cautious investors about OpenAI transactions and aggressive AI spending strategies.”

Investors want to see Oracle turn the high investment in infrastructure into revenue as quickly as promised. Capital expenditure measuring data center spending for the quarter was approximately $12 billion, up from the previous quarter's $8.5 billion. Analysts had anticipated capital expenditure of $8.25 billion for the quarter.

In a conference call after the earnings report was released, the executive said that Oracle currently expects capital expenditure for the fiscal year ending November 2026 to reach about 50 billion US dollars, an increase of 15 billion US dollars from the September forecast.

“The vast majority of our capital expenditure investments are for revenue-generating equipment within the data center rather than land, buildings, or power facilities—all covered by leasing,” Chief Financial Officer Doug Kellin emphasized during the conference call. “Oracle will not pay for the lease until the completed data center and supporting utilities are delivered.”

The company confirmed the annual revenue guidance given in October, which is expected to reach $67 billion.” As a basic principle, we expect and are committed to maintaining an investment-grade debt rating,” Kailin added.

Kailin said in a conference call that in the current fiscal quarter ending in February, total revenue will increase by 19% to 22%, and cloud sales will increase by 40% to 44%. Both predictions are in line with analysts' estimates.

“Oracle is very good at building and operating high-performance, cost-effective cloud data centers,” Clay Magulke, one of the company's two co-CEOs, said in a statement. “Because our data centers are highly automated, we are able to build and operate more such facilities.”

This is Oracle's first financial report since long-time CEO Safra Katz stepped down and Magurk and Mike Sicilia co-served as co-CEO.

Evercore ISI analyst Kirk Marton pointed out in a report before the earnings report was released that recent negative investor sentiment is partly due to deepening market doubts about the prospects of OpenAI's business, and the company is facing fierce competition from Google and other companies. He added that investors would like Oracle management to explain how the spending plan will be adjusted if OpenAI demand changes.