Oracle stock slides 13% after earnings disappointment

Oracle stock (ORCL) dropped as much as 13% on Tuesday after the company's earnings fell flat compared to AI hopes.

The enterprise software company reported its fiscal first quarter 2024 earnings on Monday after the bell, missing slightly on Wall Street's revenue expectations and offering less-than-ideal guidance.

Oracle was expected to ride the AI wave, so the letdown was particularly disappointing to Wall Street.

"Expectations were high, and while we thought this was a solid cloud number, there was no upside to [Oracle cloud infrastructure] and it wasn't the cleanest overall quarter, and the lower 2Q guide was surprising," Cowen's Derrick Wood wrote in a note on Tuesday.

Notably, cloud sales growth also slowed at Oracle, as the company runs up against competitors like Microsoft (MSFT) and Amazon (AMZN). In Q1, the company's cloud infrastructure revenue came in at $1.5 billion, an increase of 66% but still lower than the previous quarter's 76% growth.

"Is generative AI the most important new computer technology ever? Maybe, we're about to find out," Oracle's chief technology officer, executive chairman, and co-founder Larry Ellison told analysts on the company's earnings call. "As of today, AI development companies have signed contracts to purchase more than $4 billion of AI training capacity in Oracle's Generation 2 Cloud. That's twice as much AI training as we have booked at the end of the last Q4."

Additionally, Oracle is in the midst of integrating its $28.2 billion buyout of electronic medical records company Cerner, an acquisition that closed in June 2022. That heavy lift is creating complications of its own.

"In terms of challenges, Oracle faces an uncertain macroeconomic environment, is seeing 'some near-term headwinds to the Cerner growth rate,' and needs to balance its CapEx spending against its need to generate free cash flow and service its $89 billion in debt," JMP Securities analyst Patrick Walravens wrote on Tuesday.

Still, it's not all bad news for Oracle.

"Oracle continues to see outsized growth in its [infrastructure-as-a-service] business, which grew 66% year-over-year, 'has far more demand than we can fulfill,' and which is benefiting from Chairman Larry Ellison’s prescient investment in OCI Gen 2 and Nvidia chips," Walravens wrote.

Going into earnings, shares of Oracle were up roughly 56% year to date. But in the end, there might just have been a little too much AI excitement preemptively factored in.

"Oracle produced overall top-line results roughly in-line with Street estimates, but it is clear that investors were pricing in more AI and cloud-related upside," Stifel's Brad Reback wrote on Monday.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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