Oracle's Future Looks Bright But Beware Of Near-term Speed Bumps: Analysts Weigh In On Cloud And Q2 Guidance

Piper Sandler analyst Brent Bracelin reiterated Oracle Corp ORCL with an Overweight and a $130 price target.

Oracle reported revenue of $12.45 billion, up 9% year-over-year, and first-quarter adjusted earnings per share of $1.19, beating a Street consensus estimate of $1.15.

The 9% and 16% growth rates in revenue and non-GAAP EPS during 1Q indeed suggest that the decade of 1% growth is now behind ORCL. That said, the 2Q growth outlook was lower at 3% to 5% (vs. 8% this quarter), even with healthy underlying growth for Oracle Cloud, which grew by 29% Y/Y (vs. 33% Y/Y last quarter). 

While headwinds to the non-cloud and Cerner segment have surfaced, he remains confident that a mix shift to cloud that has increased to 32% of sales (vs. 22% three years ago) could help reaccelerate the growth trajectory over the next 3-5 years. The AI backlog for Oracle Cloud Infrastructure (OCI) has doubled Q/Q to $4 billion, with RPO increasing by 7% Y/Y to $65 billion. The analyst expects 2Q revenue of $12.99 billion and EPS of $1.33.

Wolfe analyst Alex Zukin had an Outperform rating with a price target of $140.

ORCL came into the print riding high on multiple upgrades, building Al's momentum, and crowded long positioning. Headline numbers on critical metrics were solid, but lower than lofty "bogeys" sent the stock down. While this move made some sense, the rest of the downdraft came after the 2Q guide, which was below consensus and implied continued deceleration for both OCI and Cloud. The pullback is overdone because the company reaffirmed the Cloud guidance for the entire year, the analyst believes. Net-net, the business (ex-Cerner) should continue to accelerate with improving margin leverage, and the analyst sees the analyst day as a potential near-term catalyst. 

Mizuho analyst Siti Panigrahi reiterated a Buy with a price target of $150.

Despite Q1 being the seasonally slowest quarter, Oracle delivered organic cloud revenue growth of 29%, driven by strength in OCI Gen 2 and back-office apps. In contrast, Oracle reported a slight revenue miss driven by weaker licenses/hardware revenue. Additionally, Cerner revenues will be challenged over the near term, given its license-to-cloud transition, which largely contributed to the below-consensus Q2 guidance. Overall, Oracle continues delivering impressive cloud growth in this macro environment while improving its margin profile. The analyst expects 2Q revenue of $13.05 billion and EPS of $1.32.

William Blair analyst Sebastien Naji reiterated a Market Perform rating.

Oracle reported revenue for its fiscal first quarter aligned with consensus, while non-GAAP EPS were modestly ahead. In addition, 

second-quarter guidance was below Street expectations. Management noted that much of the miss resulted from an accelerated transition to subscription revenue at Cerner. The growth engine for the company remains its cloud business, where SaaS revenue growth remained consistent, while IaaS growth remained strong, with OCI consumption up a healthy 91% year-over-year. Oracle is continuing to benefit from the generative AI tailwind. While he continues to view Oracle's success in IaaS as commendable, the analyst is concerned that supply constraints could limit the upside to growth in the near term. In the long term, he sees a risk that other CSPs could adopt a more price-performant architecture to rival Oracle's—given that other vendors could replicate the gen2 architecture in OCI. The analyst expects 2Q revenue of $13.04 billion and EPS of $1.32.

JMP analyst Patrick Walravens maintained an Overweight and expected 2Q revenue of $13.03 billion and EPS of $1.32.

Goldman Sachs and BofA maintained their Neutral ratings on the stock, believing near-term upside is largely priced into the shares.

Price Action: ORCL shares traded lower by 13.98% at $109.00 on the last check Tuesday.