By Zaheer Kachwala
(Reuters) -Oracle's second-quarter revenue grew less than Wall Street expected on Monday, hit by stiff competition among database and cloud services providers, sending its shares down more than 7% in extended trading.
While seeing healthy growth in its cloud segment, Oracle (NYSE:ORCL) competes with cloud heavyweights such as Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), which have established a large presence in the field.
Wall Street expectations for AI-linked firms have been high as they bet on the technology to be a strong growth driver in the future. The company's shares have soared over 80% so far this year.
"Oracle has a long history of beating estimates so even a small miss rattles Wall Street," said Rebecca Wettemann, CEO of industry analyst firm Valoir, adding that analysts' expectations for AI companies are "overheated".
Oracle reported revenue of $14.06 billion in the second quarter, up 9% from a year ago, but below estimates of $14.11 billion, as per data compiled by LSEG.
To gain market share in the competitive environment, Oracle has partnered with these so-called cloud hyperscalers by embedding its database architecture within Microsoft's Azure and Amazon's web clouds, allowing customers to connect data across various applications.
Oracle's chief executive Safra Catz said total Oracle cloud revenue should top $25 billion in fiscal 2025 and reiterated that annual capital expenditure would be double this fiscal year.
"While the Cloud business remained strong, it is requiring an exponential increase in capex, which is leading to margin pressure. We expect Oracle to remain a distant fourth hyperscaler in spite of this investment," said DA Davidson analyst Gil Luria.
The company has been pouring billions into upgrading its cloud infrastructure by buying hardware from chip giant Nvidia (NASDAQ:NVDA) and setting up cloud facilities to close the gap with industry leaders.
On an adjusted basis, the company earned $1.47 per share, compared with estimates of a profit of $1.48 per share. It forecast third-quarter adjusted EPS between $1.50 and $1.54, while analysts expected $1.57.