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 following its fiscal 2025 second-quarter results after the company missed analyst estimates and offered tempered 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 dip in price is a buying opportunity or if investors should stay away.
For its fiscal 2025 Q2 ended Nov. 30, Oracle’s revenue rose 9% year over year to $14.06 billion. That was right in line with the 8% to 10% growth it forecast and just below the $14.1 billion analyst consensus.
Cloud revenue climbed 24% year over year to $5.9 billion. Within the cloud segment, cloud infrastructure revenue surged 52% to $2.4 billion, while cloud application revenue rose 10% to $3.5 billion. Overall, there was an acceleration from the 22% cloud revenue growth the company saw in fiscal Q1.
The company said it saw record artificial intelligence (AI) demand in the quarter, which continues to outstrip supply. This led to Oracle Cloud Infrastructure (OCI) consumption revenue soaring by 52%, while graphics processing unit (GPU) consumption skyrocketed by 336%.
Oracle said OCI is training a number 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 recently signed a deal with Meta Platforms to use Oracle’s AI Cloud Infrastructure and that the companies would collaborate on the development of AI agents based on Meta’s Llama models. It said other AI customers include OpenAI, xAI, and Cohere. It added that it now has 98 cloud regions that are live and that many more will follow. It said that was more cloud regions than any other competitors.
Remaining performance obligations (RPO) soared 49% to $97 billion. Cloud RPO jumped nearly 80% and represented nearly three-fourths of its total RPO. It noted that it expects to recognize about 39% of its RPO as revenue in the next 12 months and that the growth of current RPO continues to accelerate.
Adjusted earnings per share (EPS), meanwhile, increased 10% to $1.47. That fell just short of the $1.48 analyst consensus.
Oracle forecasted fiscal third-quarter revenue to increase by 7% to 9%, with cloud revenue growing by 23% to 25%. Adjusted EPS is projected to rise by between 4% and 6%. For the full year, the company continues to forecast revenue growth in the double digits, with total cloud infrastructure revenue growing by more than 50%.
Image source: Getty Images.
Oracle continues to see strong growth from its cloud infrastructure business and in the quarter it brought online its largest-ever supercomputer, featuring 65,000 Nvidia GPUs, which adds some nice capacity. The company is ramping up its capital expenditures (capex) to capture this opportunity, with it rising to $4 billion from $2.3 billion in fiscal Q1. 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 continues to be strong, it was slightly below fiscal Q1 levels and the early rapid growth appears to be starting to level out. Notably, the Meta deal was signed after the quarter and its contribution will show up next quarter.
There is also the looming question of a potential TikTok ban next month. Its owner, ByteDance, is a big Oracle customer, and a ban of the popular social media app in the U.S. would hurt the company if it could not quickly redeploy its capacity. Fortunately for the company, cloud infrastructure demand is booming, so this may not be a huge 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. That’s not overly pricey, but unlike many other large tech companies, it carries a lot of debt.
At the end of fiscal Q2, it had net debt of $77.4 billion, while it produced 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 be buying the dip, as I feel that there are better ways to play AI infrastructure.
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