the oracle (NYSE: ORCL) Share prices have had a strong year on the back of renewed interest due to strength in its cloud infrastructure business. However, the stock was falling after its fiscal 2025 second quarter results, after the company missed analyst estimates and offered dovish guidance. The stock is still trading up more than 60% year to date as of this writing.
Let’s dig into Oracle’s fiscal Q2 results to see if this drop in price is a buying opportunity or if investors should stay away.
For Q2 of its 2025 fiscal year ended Nov. 30, Oracle’s revenue rose 9% year over year to $14.06 billion. That was right in line with forecasts of 8% to 10% growth and well below the $14.1 billion analyst consensus.
Cloud revenue grew 24% year-over-year to $5.9 billion. Within the cloud segment, cloud infrastructure revenue rose 52% to $2.4 billion, while cloud application revenue rose 10% to $3.5 billion. Overall, the company achieved an acceleration of 22% cloud revenue growth in fiscal Q1.
The company said it has seen records Artificial Intelligence (AI) Demand in the quarter, which continues to outstrip supply. This increased Oracle Cloud Infrastructure (OCI) consumption revenue by 52%, while Graphics Processing Unit (GPU) Consumption skyrocketed by 336%.
Oracle said OCI is training many of the world’s most important generative AI models, claiming it is faster and less expensive than other cloud networks. It also said that it has recently signed a deal Meta platform to use Oracle’s AI cloud infrastructure and that the companies will collaborate on the development of AI agents based on Meta’s Llama models. Other AI clients include OpenAI, xAI, and Cohere, it said. It added that it now has 98 cloud regions that are live and many more to come. It said it had more cloud area than any other competitor.
Remaining performance obligations (RPOs) rose 49% to $97 billion. Cloud RPO jumped nearly 80% and represented nearly three-quarters of its total RPO. It noted that it expects to recognize approximately 39% of its RPO as revenue over the next 12 months and that current RPO growth continues to accelerate.
Adjusted earnings per share (EPS), meanwhile, rose 10% to $1.47. That’s well below the $1.48 analyst consensus.
Oracle forecast fiscal third-quarter revenue to grow 7% to 9%, with cloud revenue growing 23% to 25%. Adjusted EPS is expected to grow between 4% and 6%. For the full year, the company continues to forecast double-digit revenue growth, with total cloud infrastructure revenue growing by more than 50%.
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Oracle continues to see strong growth from its cloud infrastructure business and this quarter it brought online its largest supercomputer ever, featuring 65,000. nvidia GPU, which adds some great capabilities. The company is increasing its capital expenditures (capex) to capture this opportunity, increasing it to $4 billion from $2.3 billion in Q1 of the fiscal year. On the negative side, with operating cash flow of just $1.3 billion, the company saw meaningful negative free cash flow due to this increased capex spending.
Meanwhile, while the company’s RPO growth is strengthening, it was slightly below the fiscal Q1 level and is starting to exit the initial fast growth level. Notably, the meta deal was signed after the quarter and its contribution will be shown in the next quarter.
There is also the question of a possible TikTok ban next month. Its owner, ByteDance, is a big Oracle customer, and a ban on the popular social media app in the US will hurt the company if it can’t quickly redeploy its capacity. Fortunately for the company, the demand for cloud infrastructure is growing, so this may not be a big issue but it is still something to watch.
Oracle trades at a forward P/E of just under 28 based on current fiscal-year analyst estimates. It’s not terribly expensive, but unlike many other big tech companies, it carries a lot of debt.
At the end of FY2, its net debt was $77.4 billion, while it generated negative free cash flow of $2.7 billion in the quarter. Given that dynamic, along with the company’s overall high-single-digit revenue growth and 10% earnings growth, I wouldn’t buy the dip, because I think there are better ways to run AI infrastructure.
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