Oracle's Guidance Falls Short, But These Comments Are What Matters to Us
Positive data points shared during Oracle’s earnings conference call are constructive for several of our portfolio holdings.
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Shares of Oracle ORCL are trading down today in response to slightly weaker-than-expected November-quarter results and guidance for the current quarter that fell short of consensus forecasts. Helping explain the bottom-line shortfall for Oracle’s guidance is the strengthening dollar and its impact on multinational companies. Based on where the dollar is now, Oracle sees it presenting a $0.03 negative effect on EPS and a 2% negative effect on revenue. We doubt Oracle will be the only copany to cite this headwind in the coming weeks, and it’s one we are continuing to follow closely.
There were, however, positive data points shared during Oracle’s earnings conference call that are constructive for several of our portfolio holdings. That includes our AI and digital infrastructure positions in Nvidia NVDA and Marvell Technology MRVL as well as shares of Elastic ESTC and ServiceNow NOW. Among those comments, record-level AI demand drove Oracle cloud infrastructure revenue up 52%, cloud services revenue was up 55%, and the company’s infrastructure cloud services now have an annualized revenue of $9.7 billion.
Management said that growth in the AI segment of Oracle’s Infrastructure business was “extraordinary” with GPU consumption rising 336% in the quarter. Continued cloud and AI adoption led Oracle to say it sees its total cloud infrastructure growing faster than the 50% it reported last year. Supporting that outlook, the company’s remaining performance obligation (RPO) climbed 50% year over year to $97 billion.
Building on that and partly explaining why the company is forecasting such robust growth, Oracle Chairman and CTO Larry Ellison supported our thought that AI adoption will translate into greater investment in digital infrastructure: “… as we make our networks faster, the AI training will get faster. If we don't — if no one makes the networking faster, then I think there's a potential bottleneck. But we're trying to avoid that bottleneck by speeding up our networking.”
Improving the speed of that network supports the expected rebound in Marvell’s enterprise networking and carrier infrastructure businesses. MRVL shares have faded since their post-earnings pop last week and the next level of technical support shows up just below $97. A similar fade has unfolded with ESTC shares, and they are closing in on support at $102 and just over $99. Should we see these shares positively test their respective support levels in the coming days, given the upside to our price targets, a revisit for their current Two ratings may be in order.
At the time of publication, TheStreet Pro Portfolio was long NVDA, MRVL, ESTC and NOW.
