Having delivered a strong six weeks of trading to investors, with a 15% gain since the end of October, shares of Oracle Corp (NYSE:ORCL) were being closely watched last night. The tech titan was due to release their Q2 earnings after the bell rang to end Monday’s session, and when it came to grabbing headlines, it didn’t disappoint.
Investors will be disappointed, however, that it wasn’t exactly for the right reasons. While the company managed a marginal beat on its EPS for the quarter, its revenue missed analyst expectations. It was still up year on year, but Oracle really needed to deliver a strong beat across the board to justify an end-of-year rally.
Bumpy Q4
Instead, it’s looking like its stock is set to end the year in a firm downtrend that’s threatening to become a permanent fixture. All the way into this past September, Oracle had been on an absolute tear since October of last year. Its shares were up more than 100% at one point as the company found itself incredibly well exposed to the AI explosion that dominated market trends in the first half of this year.
But with the whole AI thing starting to cool a bit, Oracle found itself selling off hard into October as equities, in general, softened. Against the benchmark S&P 500 index over the past three months, Oracle is now lagging behind it, which is never a good sign. In Monday’s after-hours session, the stock fell to $105, a drop of about 8%, and is currently trading at around $102.5.
Buying opportunity
However, for those of us watching from the sidelines, this could mean there’s a serious buying opportunity opening up. While it’s never a good look to miss analyst expectations for an earnings report, there was still a lot to like about what Oracle released last night. As their founder, Larry Ellison, pointed out, such is the demand for the company’s cloud infrastructure that they need to build 100 additional cloud data centers just to accommodate the “billions of dollars more in contracted demand than we currently can supply.”
Having to build additional capacity to meet demand is exactly the kind of headache and problem you want your company to have, no matter its industry. Oracle’s cloud business is approaching a $20 billion annual revenue run rate, and as their CEO Safra Catz said, “business is good and getting better.” Ellison himself said that he expects Oracle Cloud Infrastructure’s growth rate to be more than 50% for the foreseeable future.
So, with last night’s numbers not quite having matched up to expectations, it’s only to be expected that shares will sell off in the short term as they recalibrate. However, Oracle’s longer-term outlook clearly remains promising and bullish, which can only be a good thing for those of us considering an entry point. For context, the current post-earnings drop in shares is only going to put them back to where they were last month.
The main worry is that, technically, this will still be strengthening the pattern of lower highs and lower lows that’s been forming since June. A double top formed when September’s rally ran out of steam, and the bears have been in control since. We expect there to be strong support around the $100 mark, as this is where the bulls stepped in in October and should be found in strength there again.
Getting involved
This is still the same Oracle that was upgraded to a Buy last month by the team at Edward Jones, who are looking for sales growth to accelerate into and through 2024. The company’s ongoing transition to the cloud, which sees it going from licensing its products to selling them on a subscription basis, is still the name of the game, and shares are set to continue benefiting for the foreseeable future.
So, for now, let’s see what happens today and tomorrow as Wall Street digests the report some more. Investors should watch for any sign of the dip being bought, as this would confirm that the market is willing to shrug off the revenue miss and focus more on the long-term play.