Oracle (NYSE: ORCL) Share prices have had a strong year due to renewed interest driven by the strength of the cloud infrastructure business. However, the stock fell following its second-quarter fiscal 2025 results after the company missed analyst estimates and offered muted guidance. The stock is still up more than 60% this year at the time of writing.
Let’s take a look at Oracle’s fiscal Q2 results to see if this price drop is a buying opportunity or if investors should stay away.
For the second quarter of 2025 ended Nov. 30, Oracle’s revenue rose 9% year over year to $14.06 billion. That was right in line with forecast growth of 8% to 10% and just below the analyst consensus of $14.1 billion.
Cloud revenue rose 24% year over year to $5.9 billion. Within the cloud segment, cloud infrastructure revenues rose 52% to $2.4 billion, while cloud application revenues rose 10% to $3.5 billion. Overall, there was an acceleration from the 22% cloud revenue growth the company saw in the first quarter.
The company said it saw record demand for artificial intelligence (AI) this quarter, which continues to outpace supply. This led to Oracle Cloud Infrastructure (OCI) consumption revenues rising 52%, while graphics processing unit (GPU) consumption skyrocketed 336%.
Oracle said OCI trains some of the world’s most important generative AI models and claims it is faster and cheaper than other cloud networks. It also said it recently signed a deal with Metaplatforms to use Oracle’s AI Cloud Infrastructure and that the companies would collaborate on developing AI agents based on Meta’s Llama models. Other AI customers include OpenAI, xAI and Cohere. It added that it now has 98 cloud regions that are live, with many more to follow. It said this was more cloud regions than any other competitor.
Remaining performance obligations (RPO) increased 49% to $97 billion. The Cloud RPO increased by almost 80% and represented almost three-quarters of the total RPO. It noted that it expects to recognize approximately 39% of its RPO as revenue over the next twelve months and that current RPO growth continues to accelerate.
Adjusted earnings per share (EPS), meanwhile, rose 10% to $1.47. That remained just below the analyst consensus of $1.48.
Oracle predicts fiscal third quarter revenue will rise 7% to 9%, while cloud revenue will grow 23% to 25%. Adjusted earnings per share are expected to rise 4% to 6%. For the full year, the company continues to forecast double-digit revenue growth, with total cloud infrastructure revenue growing more than 50%.
Image source: Getty Images.
Oracle continues to see strong growth in its cloud infrastructure business, bringing its largest ever supercomputer online in the quarter, with 65,000 Nvidia GPUs, which adds nice capacity. The company is ramping up its capital expenditure (capex) to capitalize on this opportunity, rising to $4 billion from $2.3 billion in the first fiscal year. On the negative side, the company, with operating cash flow of just $1.3 billion, saw meaningful negative free cash flow as a result of this increased capital expenditure.
While the company’s RPO growth remains strong, it has since been slightly below fiscal first quarter levels and early rapid growth appears to be leveling off. It is notable that the Meta deal was signed after the quarter and its contribution will become visible next quarter.
There’s also the looming question of a possible TikTok ban next month. Its owner, ByteDance, is a major customer of Oracle, and a ban on the popular social media app in the US would hurt the company if it cannot quickly redeploy its capacity. Fortunately for the company, demand for cloud infrastructure is growing tremendously, so this may not be a major problem, but it’s still something to watch.
Oracle is trading at a forward price-to-earnings ratio of just under 28, based on current analyst estimates for the fiscal year. That’s not overly pricey, but unlike many other big tech companies, it comes with a lot of debt.
ORCL PE Ratio (Forward) Data per YCharts
At the end of the second fiscal quarter, the country had net debt of $77.4 billion, while generating negative free cash flow of $2.7 billion in the quarter. Given that momentum, along with the company’s overall revenue growth in the high single digits and 10% earnings growth, I wouldn’t buy the dip, as I believe there are better ways to leverage AI infrastructure.
Consider the following before buying shares in Oracle:
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Oracle shares plummet due to poor guidance. Is it time to buy the stock on the dip or stay away? was originally published by The Motley Fool
