Oracle (ORCL) Stock Drops as Earnings Beat Crushed by Revenue Miss and Weak Guidance

TLDR

• Oracle’s Q2 adjusted EPS hit $2.26, crushing the $1.64 estimate, largely thanks to a $2.7 billion gain from selling its Ampere chip stake to SoftBank
• Revenue of $16.06 billion missed expectations of $16.19 billion despite growing 14% year-over-year
• The company’s multiyear backlog exploded to $523 billion, up $68 billion from last quarter, with new commitments from Meta and Nvidia
• Q3 guidance disappointed with revenue growth forecast of 19-21%, below what Wall Street wanted
• Oracle shares dropped 11% after hours, dragging down AI stocks like Nvidia and AMD

Oracle stock took a beating in after-hours trading, plunging 11% despite reporting earnings that demolished Wall Street expectations. The database giant posted adjusted earnings-per-share of $2.26, way above the $1.64 consensus estimate.

Oracle Corporation, ORCL

But there’s a catch. Most of that earnings beat came from a one-time event.

Oracle sold its stake in chip designer Ampere to SoftBank for $2.7 billion. That sale boosted pre-tax earnings by 91 cents per diluted share. Strip that out, and the earnings picture looks less impressive.

The real problem showed up in the revenue line. Oracle brought in $16.06 billion for the quarter, falling short of the $16.19 billion analysts expected. That’s a 14% jump from last year, but missing estimates is never what investors want to see.

Oracle’s transformation into a cloud company continues to reshape the business. Cloud revenue hit nearly $8 billion for the quarter, up 34% from last year. Cloud infrastructure, the part that rents out data center capacity, jumped 68%.

That growth comes at a cost. The legacy software business that made Oracle a tech giant saw revenue slip 1% year-over-year.

Cloud Push Drives Massive Spending

The company’s multiyear backlog swelled to $523 billion. That’s up $68 billion from just last quarter. Meta and Nvidia signed on as new customers during the period.

Founder Larry Ellison pitched Oracle’s AI strategy on the earnings call. The company holds vast amounts of private corporate data in its databases. Ellison believes training AI models on that private data will become even bigger business than training on public data.

But becoming a cloud infrastructure player requires enormous capital spending. Oracle burned through $35 billion in capex over the past 12 months. Free cash flow went negative by $10 billion for the quarter. Wall Street had expected negative $5.2 billion.

The company now projects $50 billion in full-year capital expenditures, up from $35 billion in September. That’s more than double the $21.2 billion spent in fiscal 2025.

Debt Concerns Mount

All that spending needs financing. Oracle added $18 billion in debt back in September. Credit default swap prices, which measure default risk, started rising again after the earnings release.

New CEO Clay Magouyrk tried to calm worries about financing needs. Some analysts have modeled Oracle needing $100 billion to complete its cloud buildouts. Magouyrk said the actual number would be “substantially less.”

The company committed to maintaining its investment-grade debt rating. Oracle also noted that some customers might bring their own chips or suppliers might lease equipment rather than sell it.

The profit margin squeeze continues. Operating margin fell from 43.4% last year to 41.9% this quarter. Cloud has lower margins than the legacy software business.

Third-quarter guidance disappointed investors. Oracle forecast adjusted EPS of $1.70 to $1.74 and revenue growth of 19% to 21%. The consensus had been $1.72 per share and $16.87 billion in revenue.

Oracle’s stock has been volatile since September. Shares initially surged 36% when the company revealed its backlog had grown by over $300 billion. Then reality set in. Most of that increase came from a single contract with OpenAI, which doesn’t have the money yet. The stock dropped 33% after that news.

The sell-off spread to other AI stocks. Nvidia and AMD each fell about 1% in after-hours trading. Cloud provider CoreWeave dropped more than 3%.

Oracle announced a “chip neutrality” policy alongside the earnings. The company sold Ampere because designing its own chips no longer fits the strategy. Oracle will buy the latest GPUs from Nvidia but remain flexible about deploying whatever chips customers want.

The first Project Stargate data center opened in September. That’s part of a massive effort involving Oracle and others to spend half a trillion dollars on new U.S. data centers. Oracle executives said capital spending will remain high to fulfill cloud contracts.

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