Oracle stock up 10% after earnings: why analysts are cutting targets

Shares of Oracle surged after the company reported stronger-than-expected fiscal third-quarter results.

Oracle reported adjusted earnings per share of $1.79 for the quarter, beating Wall Street expectations of $1.70 and rising from $1.47 in the same period a year earlier.

Revenue reached $17.2 billion, ahead of the consensus estimate of $16.9 billion and representing a 22% increase year over year.

The results sent Oracle shares sharply higher, with the stock rising 9.8% to $164.16 in early trading Wednesday.

Cloud Business drives growth

Oracle’s cloud division continued to lead the company’s expansion.

The cloud segment, which now accounts for more than half of Oracle’s overall revenue, generated $8.9 billion in sales during the quarter, marking a 44% increase from the prior year.

Growth was driven largely by Oracle Cloud Infrastructure, the company’s server-rental and computing platform business, where revenue jumped 84%.

Oracle’s cloud software segment recorded a 13% rise in sales.

Meanwhile, Oracle’s legacy software, hardware and services divisions posted more modest growth.

These segments generated $8.3 billion in revenue, representing a 4% increase from the previous year.

The company also reported a sharp increase in its backlog.

Remaining performance obligations — a measure of contracted future revenue — rose by $29 billion to reach $553 billion.

Approximately $300 billion of that total represents a single multiyear contract with OpenAI.

Analysts see improving momentum

Wall Street analysts reacted positively to the results.

KeyBanc Capital Markets analyst Jackson Ader described the results as encouraging.

“Results and commentary were a step in the right direction,” Ader wrote in a research note.

He noted that Oracle’s backlog grew sequentially by more than expected, even as more contracts are structured so that customers bring their own chips.

Ader reiterated an Overweight rating on Oracle shares with a price target of $300.

Analysts cut price targets

Some analysts adjusted their outlooks following the results.

BMO Capital Markets analyst Keith Bachman lowered his price target to $200 from $205 while maintaining an Outperform rating.

Bachman said the quarter showed improved execution and highlighted positive trends in database demand, gross margins, capital expenditures and financing.

He noted Oracle’s gross profit margin stood at 68.54% over the past twelve months.

Meanwhile, Piper Sandler reduced its price target to $210 from $240 while keeping an Overweight rating.

The firm cited broader multiple compression across the software sector but said Oracle’s outlook could improve if the company monetises artificial intelligence demand faster than expected.

Piper Sandler also highlighted that Oracle signed more than $29 billion in AI-related contracts using a capital-light structure in which customers either prepay or supply their own hardware.

Oracle pushes back on AI disruption narrative

Concerns that artificial intelligence could disrupt traditional enterprise software providers have weighed on the broader sector in recent months.

During prepared remarks, Mike Sicilia addressed those concerns directly.

After outlining several AI integrations across Oracle’s product suite, Sicilia said, “these are not systems that can be replaced by a small collection of niche features cobbled together and bolted on in the name of AI. So yes, some smaller or single focused SaaS players may well be disrupted, but Oracle will not be among them.”

Oracle maintained its guidance for both the current quarter and the full fiscal year.

Heavy spending on data centres continues

Despite the strong earnings performance, Oracle’s aggressive investment in cloud infrastructure continues to weigh on profitability and cash flow.

The company reported operating cash flow of $7 billion for the quarter, but that figure was offset by $19 billion in capital expenditures tied largely to data centre expansion.

Oracle has largely halted share buybacks as it directs cash toward infrastructure investments.

The company reaffirmed plans to spend about $50 billion in capital expenditures for the fiscal year ending in May.

To help fund these investments, Oracle issued an additional $27 billion in debt during the quarter, bringing its total debt load to roughly $135 billion.