Oracle Stock Whipsaws as Management Discusses Outlook

Oracle’s meeting for analysts comes about a month after the company reported solid first-quarter earnings. (Justin Sullivan/Getty Images)

Key Points

• Oracle stated its AI cloud server-rental business has a 35% gross margin over a contract’s life. An article published last week said it was 14%.
• Oracle raised its 2030 revenue forecast for Oracle Cloud Infrastructure from $144 billion to $166 billion.
• The news came at an afternoon-long briefing for analysts.

Oracle stock got a lift as executives reassured investors about the profitability of a business renting servers to AI companies, only to fall as the tech giant discussed its broader financial outlook over the next five year.

The rally came as Oracle pushed back on a story that ran in The Information last week, which said that gross profit margin at Oracle’s fast-growing AI cloud server-rental business was surprisingly low at 14%.

While Oracle stock was down 2.5% that day, the stock rose almost 4% in a minute on Thursday, after Oracle presented a slide at a briefing for analysts that attributed the low gross margin to the rapid expansion of data-center expenses before customer contracts go live.

That fits with the article in The Information, which said the time between when Oracle finishes preparing its data center for use and when customers start paying for them is a financial burden for the company.

But according to Oracle, the actual gross margin across the entire life of the contract is 35%. The Information didn’t immediately respond to a request for comment.

As a point of contrast, CoreWeave is a competing AI cloud provider that is also expanding rapidly. It had a 51% gross profit margin in its most recent quarter.

Oracle also updated its long-term outlook for the AI cloud server-rental business, Oracle Cloud Infrastructure, raising its forecast of projected 2030 revenue from $144 billion to $166 billion. That would represent a 75% annual growth rate from $10 billion in fiscal 2025.

Oracle shares were up 3.1% at the close of trading, but shifted suddenly as CFO Doug Kehring outlined companywide targets through 2030.

The new estimates were a significant upgrade from the outlook a year ago, at the 2024 analyst meeting. Then, Oracle projected $104 billion in 2029 revenue, but the new target is for $185 billion that year and $225 billion in 2030. Management now expects both revenue and earnings per share to grow at around 30% a year.

Despite the positive revisions, the stock fell about 2% in after-hours trading. It was down 3.89% in the Friday premarket.

Underlying the new projections is Oracle’s backlog of contracted work, now over half a trillion dollars. But $300 billion of that is a single multiyear contract with OpenAI. It remains to be seen if OpenAI can find the funding to fulfill its end of the bargain.

Write to Adam Levine at adam.levine@barrons.com