Tuesday saw a decline of 10.4% in Oracle (ORCL) shares, precipitated by a disappointing quarter of cloud sales and an unfavorable forecast. Concerns have been raised regarding the company's growth trajectory in light of these factors. However, the surge in generative AI will aid in this endeavor.
Oracle's Losses Came From Cloud Infrastructure Division
Over the past three quarters, Oracle's cloud infrastructure division has experienced a deceleration in revenue growth. Barclays analysts have observed that investors are rather concerned about the sluggish development of Oracle Cloud Infrastructure (OCI), given its pivotal role in the investment discourse.
The overall cloud revenue, which includes software, exhibited a 25% growth during the second quarter, which failed to meet the company's expected range of 29%-31%.
Inadequate enterprise expenditures and intense competition from larger competitors also contributed to the lackluster outcomes. Based on LSEG data, Oracle projected a revenue growth of 6%-8% for the third quarter, encompassing the health data software platform Cerner. This figure fell short of the average estimate of analysts, around 7.6%.
Oracle has lost around $33 billion in market capitalization with a share price of $103.14 despite a 40% share increase this year. The current setback has caused the company to incur a loss of approximately $33 billion in market capitalization, but it might fluctuate based on the upcoming price action.
Analysts' Projection On Oracle Stock
Oracle placed the blame for its subpar performance on limitations in supply. In light of this, Oracle CEO Safra Catz acknowledged that the company's generative AI and cloud infrastructure services were in high demand. Due to the disappointing results, analysts continue to be cautious about the company's future, with at least four brokerages reducing their price targets.
According to brokerage Piper Sandler, concerns were expressed regarding the sustainability of top-line growth recovery through a cloud transition, particularly after two consecutive quarters of cloud revenue falling short of expectations.
ORCL Stock Technical Analysis
In the daily chart of ORCL stock, a strong bearish pressure is seen after the release of the earnings report. The weaker-than-expected report posted the price below the trendline support with a huge gap. Fundamentally, investors might see more losses ahead, but they might need more clues from a technical perspective.
The recent selling pressure pushed the price below the 20 dynamic EMA and static 108.80 level. In that case, if the Oracle stock price holds the downside pressure below the 108.00 to 105.00 zone, we may expect more losses toward the 89.00 Fibonacci Extension level.
The alternative approach is to look for a bullish trend trading opportunity, which needs a valid recovery above the 109.00 level with a daily close above the 20 day EMA.