AI cloud infrastructure revenue failed to boost Oracle's performance in the second fiscal quarter, dropping over 9% in after-hours trading | Earnings report insights

Although revenue from cloud infrastructure benefited from the demand brought by the artificial intelligence (AI) boom, Oracle's revenue for the most recent fiscal quarter did not explode as Wall Street expected, and the guidance for the current fiscal quarter remains below expectations.

On December 9th, Eastern Time, after the U.S. stock market closed, Oracle announced its financial data for the second quarter of fiscal year 2025 (referred to as Q2) ending November 30, 2024, and provided performance guidance for the third quarter (referred to as Q3).

1 ) Key Financial Data:

Revenue: Q2 operating revenue increased by 9% year-on-year to $14.06 billion, while analysts expected $14.12 billion, with the previous fiscal quarter showing a year-on-year increase of 7%.

EPS: Q2 adjusted earnings per share (EPS) on a non-GAAP basis was $1.47, a year-on-year increase of 9.7%, while analysts expected $1.48, with the previous fiscal quarter showing a year-on-year increase of 17%.

Operating Profit: Q2 adjusted operating profit was approximately $6.1 billion, a year-on-year increase of 10.1%, while analysts expected $6.13 billion, with the previous fiscal quarter showing a year-on-year increase of 14%.

Operating Profit Margin: Q2 adjusted operating profit margin was 43%, unchanged from a year ago and the previous fiscal quarter, while analysts expected 43.3%.

2 ) Segment Business Data:

Cloud Services and License Support: Q2 revenue from cloud services and license support was $10.806 billion, a year-on-year increase of 12.1%, with the previous fiscal quarter showing a year-on-year increase of 10.2%.

Cloud Licenses and On-Premises Licenses: Q2 revenue from cloud licenses and on-premises licenses was $1.195 billion, a year-on-year increase of 1.4%, with the previous fiscal quarter showing a year-on-year increase of 7%.

Cloud Services: Within the cloud services and license support business, total revenue from cloud services in Q2 was $5.9 billion, a year-on-year increase of 24.3%, while analysts expected $6 billion, with the previous fiscal quarter showing a year-on-year increase of 21%; among them, cloud applications (SaaS) revenue was $3.5 billion, while analysts expected $3.58 billion, and revenue from cloud infrastructure (IaaS) business OCI was $2.4 billion, while analysts expected $2.42 billion.

3 ) Performance Guidance:

Revenue: Q3 revenue is expected to increase by 7% to 9% year-on-year, with a median of approximately $14.3 billion, while analysts expected $14.65 billion.

EPS: Q3 adjusted EPS is expected to be between $1.50 and $1.54, while analysts expected $1.57.

After the earnings report was released, Oracle's stock price, which fell nearly 0.7% on Monday, quickly expanded its decline in after-hours trading, dropping more than 9% at one point. Anurag Rana, an analyst at Bloomberg Industry Research, commented that perhaps investors were expecting significantly better-than-expected performance, but that was not the case. Rishi Jaluria, an analyst at Royal Bank of Canada Capital Markets, stated that Q2 was a "mixed quarter, contrary to overly high expectations."

Second Quarter Revenue and Profit Growth Below Expectations, Third Quarter Guidance Exceeds Expectations but Slows Down

According to the financial report, Oracle's total revenue in the second quarter accelerated compared to the previous fiscal quarter, with a year-on-year growth rate of 9%, higher than the previous quarter's 7%, and within the company's growth guidance range of 8% to 10%. However, it was slightly lower than analysts' expectations. The EPS growth in the second quarter slowed down, with a year-on-year growth rate of less than 10%, which is less than 60% of the previous quarter's year-on-year growth rate of 17%, and the degree of slowdown slightly exceeded analysts' expectations.

As of the end of the second quarter, Oracle's remaining performance obligations (RPO), a measure of orders, stood at $97 billion, a year-on-year increase of 50%, with the growth rate slightly slowing from the previous quarter's 53%, and down about 2% from the previous quarter's record high of $99 billion.

In terms of performance guidance, Oracle's expected revenue and EPS performance both fell short of analysts' expectations. Oracle anticipates that revenue in the third quarter will grow by 7% to 9% year-on-year, which means it may match last year's growth rate of 7% or be slightly higher than this growth rate. Even the highest guidance growth rate for the third quarter is only expected to match the level of the second quarter.

Based on the EPS guidance range, Oracle's adjusted EPS for the third quarter is expected to grow by 6.4% to 9.2% year-on-year, with even the high end of the guidance range being lower than the second quarter's growth rate of 9.7%.

Oracle's Cloud Infrastructure Revenue Grew by 52% in the Second Quarter, Expected Cloud Computing Revenue to Exceed $25 Billion This Fiscal Year

Oracle CEO Safra Catz revealed during the earnings announcement that the cloud computing revenue for fiscal year 2025 is expected to exceed $25 billion. This expectation is generally consistent with Wall Street's estimate of $25.1 billion.

Catz also stated during the second quarter earnings announcement that record AI demand drove Oracle's cloud infrastructure revenue to grow by 52% in the quarter, a growth rate far exceeding that of other large-scale cloud infrastructure competitors. In the infrastructure business, AI infrastructure growth was astonishing, with GPU consumption increasing by 336%. Oracle delivered the world's largest and fastest AI supercomputer during the quarter, scalable to 65,000 NVIDIA H200 GPUs.

Oracle Chairman and CTO Larry Ellison stated that Oracle's cloud infrastructure has trained some of the world's most important generative AI models because Oracle's cloud is faster and cheaper than others. Oracle has just signed an agreement with Meta to provide Meta with access to Oracle's AI cloud infrastructure and to collaborate with Oracle to develop AI agents based on the Meta Llama model.

In September of this year, Oracle raised its revenue guidance for the next fiscal quarter, expecting the company's revenue for fiscal year 2026 to reach at least $66 billion, an increase of $6.5 billion from the previous guidance, exceeding the then-average analyst expectation of $64.5 billion. At the same time, Oracle expects revenue for fiscal year 2029 to be at least $104 billion, which means nearly 58% revenue growth within three years At that time, Wall Street News mentioned that raising the revenue guidance is an optimistic signal for the growth prospects of Oracle's cloud infrastructure business, OCI. Known for its database software, Oracle is currently focused on expanding in the OCI field. Oracle competes with Amazon, Microsoft, and Google's parent company Alphabet by renting out computing power and storage