On Tuesday, shares of Oracle (ORCL.N) fell by more than 10% after the firm issued a disappointing outlook, which showed that intense competition in the cloud-computing business and a slowdown in digital expenditure were impacting the company’s sales growth.
The corporation’s market value was expected to decrease by more than $30 billion as time went on. The share price has increased by almost 50 percent this year based on expectations that the development of generative AI would increase demand for cloud computing.
However, revenue for the first quarter that was lower than anticipated and a prediction for the second quarter that was lower than projected indicated that the benefit from AI would take longer to become apparent.
Oracle, which is renowned for its database software, has been playing catch-up with cloud heavyweights such as Amazon Web Services (AMZN.O), Microsoft’s (MSFT.O) Azure, and Alphabet’s (GOOGL.O) Google Cloud at a time when companies are cutting back on their technology expenditure due to fears about the economy.
Oracle’s Chief Executive Officer Safra Catz warned that there would be a slowdown in revenue growth shortly at the Cerner health records firm, which Oracle purchased for $28.3 billion the previous year. The corporation is transitioning its clients to the cloud environment in the unit that makes upfront license purchases.
“We continue to believe high single-digit growth might be unsustainable for Oracle given Cerner integration risks and formidable data center competition,” D.A. Davidson analyst Gil Luria said as he lowered his price objective on the company by 17% to $105, saying that he was “continuing to believe” that high single-digit growth might not be sustainable for Oracle.
However, most analysts had a favorable outlook on the firm and blamed Oracle’s surge in the days leading up to the results for the drop in the share price.
According to analysts at Barclays, “Shares were already up a significant amount recently, so Q1 does not look like a short-term catalyst.” On the other hand, they noted certain positives, such as good deferred revenue, AI backlog comments, and some optimistic indicators in the cloud sector.
According to the data provided by LSEG, at least seventeen brokerages increased their price targets on the stock, which pushed the consensus view to $133. This is an almost 5% increase over the company’s most recent closing price.
Oracle has a price-to-earnings ratio for the next 12 months, which is 21.78, much higher than the industry median of 15.42.
