(CTN News) – Oracle’s stock experienced a 9% decline in premarket trading on Tuesday due to disappointing cloud sales and a pessimistic forecast.
This has raised concerns about the company’s ability to capitalize on the expected surge in generative AI. Over the past three quarters, the growth of Oracle’s cloud infrastructure unit, which competes with industry giants like Amazon Web Services and Microsoft Azure, has significantly decelerated.
Analysts at Barclays expressed their apprehension about this slowdown in Oracle Cloud Infrastructure growth, as it is a crucial aspect of the company’s investment narrative.
Oracle’s shares have experienced a significant 40% increase this year, driven by the growing adoption of generative AI, the technology that powers the popular chatbot ChatGPT.
This trend has led investors to believe that companies providing data center services, like Oracle, will see substantial growth.
Co-founded by billionaire Larry Ellison, Oracle has made substantial investments in building data centers as part of its strategy to transform into a cloud-based company.
However, Oracle recently attributed its weak results to supply constraints.
CEO Safra Catz acknowledged that the demand for the company’s generative AI and cloud infrastructure services was growing at an “astronomical rate.”
Despite this, analysts have expressed concerns about prospects. Following the release of the results, at least four brokerages have lowered their price targets for the company’s stock.
Piper Sandler, a brokerage firm, stated that two consecutive quarters of cloud revenue shortfalls have diminished their confidence in their ability to achieve sustainable top-line growth through a cloud transition.
In the second quarter ending on November 30, total cloud revenue, including software, increased by 25%, falling short of the company’s expectations for a 29%-31% rise.
In addition to facing weaker enterprise spending and fierce competition from larger players, the overall results were also negatively impacted. Oracle has projected a third-quarter revenue growth rate of 6%-8%, which includes the health data software platform Cerner.
However, the mid-point of this forecast falls below the average estimate of analysts, which stands at approximately 7.6% according to LSEG data.