Oracle shares slide as earnings fail to ease AI bubble fears

Shares of cloud computing giant Oracle fell more than 10% in after-hours trading on Wednesday after the company's earnings fell short of Wall Street expectations.

The company said revenue for the three months ended November was $16.06bn (£11.99bn), compared with analysts' forecasts of $16.21bn.

Revenue growth was 14%, with sales from Oracle Cloud Infrastructure (OCI) artificial intelligence division up 68%, the company said.

OCI serves major AI technology developers whose demand for Oracle's AI infrastructure helped the company's shares reach new highs this fall, but Wednesday's results failed to quell concerns about a potential AI bubble.

In September, Oracle awarded a highly sought-after contract to ChatGPT maker OpenAI, which agreed to purchase $300 billion worth of computing power from Oracle over five years.

Following this announcement, Oracle Chairman and CTO Larry Ellison briefly became the richest person in the world.

But the company's shares have lost 40% of their value since peaking three months ago. However, since the beginning of the year they have grown by more than a third.

In a statement issued on Wednesday, Mr. Ellison struck a cautious tone.

“There will be many changes in artificial intelligence technology over the next few years, and we must remain flexible in responding to these changes,” he wrote.

Mr. Ellison also appeared to snub Nvidia, a developer of high-end artificial intelligence chips, saying Oracle would buy chips from any manufacturer to serve customers.

“We will continue to buy the latest GPUs from Nvidia, but we must be willing and able to use whatever chips our customers want to buy,” Mr. Ellison said in a policy he called “chip neutrality.”

Oracle is involved in numerous AI infrastructure agreements, raising the possibility that major players in the sector are engaging in “circular financing” deals, in which companies fund purchases of their own products and services.

“Oracle's earnings come as investors weigh whether its massive partnership with OpenAI could mean an undue focus on the customer, which is currently in the spotlight due to profitability concerns,” Emarketer analyst Jacob Bourne said after the company's quarterly report was released.

Mr. Bourne said Oracle faced increasing scrutiny over the increased debt it had amassed to finance data center construction.

But others said Wall Street's backlash was unfounded.

“It was just a great quarter for Oracle,” said Corey Johnson, chief market strategist at Epistrophy Capital Research. “Earnings growth accelerates 14%.”

Including the September deal with OpenAI, Mr. Johnson noted, Oracle has signed $385 billion in contracts in six months, and “those new customers are companies like Meta and Nvidia.”

“But the sentiment around AI is so bad right now that it's considered a bad thing for Oracle,” he added.

Oracle raised a record $18 billion in a massive bond sale in September, one of the largest debt issues ever in the technology sector.

“While Oracle shares are supported by September gains, this decline in earnings is likely to increase concerns among already cautious investors about the OpenAI deal and aggressive AI spending,” Mr. Bourne said.

The Ellison family, supporters of US President Donald Trump, also recently acquired Paramount and are leading an effort to acquire another major Hollywood studio, Warner Brothers Discovery.