Cloud business cooling off in the short term? Oracle Corporation (ORCL.US) Q3 revenue falls short of expectations, full-year guidance unexpectedly strong.

Oracle Corporation (ORCL.US) announced its performance for the third quarter, with sales and profits for the current quarter forecasted to be lower than analysts' expectations. Sales for the third quarter increased by 6% year-on-year to $14.1 billion, below the average analyst expectation of $14.4 billion. Excluding certain items, earnings per share were $1.47, compared to the analysts' average expectation of $1.49 per share. Oracle Corporation stated that for the current quarter ending in May, sales are expected to increase by 8% to 10%, below analysts' expectations of an 11% increase. Earnings per share, excluding certain items, are expected to be in the range of $1.61 to $1.65, below the average expectation of $1.77. Infrastructure revenue increased by 51% year-on-year (calculated at fixed exchange rates) to $2.7 billion, while application revenue increased by 10% year-on-year to $3.6 billion. Revenue from Oracle Corporation's cloud infrastructure also fell short of expectations. Total cloud computing revenue, including infrastructure and applications, increased by 23% to $6.2 billion, below the average expectation of $6.3 billion. Despite this, the company highlighted a significant increase in bookings and stated that its growing cloud infrastructure business will boost revenue in the next two fiscal years. As of February 28, the company's remaining performance obligations, a measure of bookings, surged by 63% to $130 billion due to a $48 billion deal signed in this quarter, compared to $97.3 billion in the previous quarter. Oracle Corporation projects that sales will increase by 15% in fiscal year starting in June and by 20% by fiscal year 2027. Analysts' average expectations are 13% and 14%, respectively. The future sales growth is largely attributed to Oracle Corporation's growing cloud infrastructure business, driven by the demand for computing power to run artificial intelligence workloads. In January of this year, the company announced a joint venture with OpenAI and SoftBank Group to build a $100 billion data center for the AI startup, confirming its strategic position as a major player in the competitive computing and storage leasing industry. The project is called "Stargate." Oracle Corporation CEO Safra Catz stated in a statement on Monday, "We have now signed cloud agreements with several of the world's leading technology companies, including: OpenAI, xAI, Meta, NVIDIA Corporation, and AMD." Catz mentioned that although the joint venture's park in Abilene, Texas is under construction, Oracle Corporation's $130 billion remaining performance obligations do not include any business from this project named "Stargate"; bookings will "continue to grow rapidly - we look forward to signing our first Stargate contract." Investors are closely watching data center spending in the industry for any signs of a slowdown. The recent release of DeepSeek raised concerns as its model's computing power can rival other large models but at a fraction of the cost, leading to concerns about excessive investment in building data centers. In the cloud computing market dominated by Microsoft Corporation (MSFT.US) and Amazon.com, Inc. (AMZN.US), Oracle Corporation is a newcomer. The company has been working on enhancing its cloud services by integrating artificial intelligence to handle a vast amount of data. To support these data-intensive AI services, the company has been strategically expanding its infrastructure through investments in data centers and semiconductor technology. Oracle Corporation's capital expenditure for this quarter (a measure analysts use for data center construction) was $5.9 billion, significantly higher than the average analyst expectation of $3.8 billion. Catz also expects capital expenditures for the fiscal year to more than double to $16 billion, adding that demand is "substantially" exceeding supply. Oracle Corporation Chairman Larry Ellison stated that the company plans to double its data center capacity within the calendar year to meet "record demand." The strong growth prospects for fiscal years 2026 and 2027 indicate no signs of slowing demand for advanced artificial intelligence computing. Bloomberg analyst Anurag Rana wrote in a report after the earnings announcement, "Management's revenue growth target for fiscal year 2026 is 15%, while the market generally expects 13%, which is encouraging and indicates that customers will continue to invest in AI infrastructure." Under a law that took effect this year, ByteDance's TikTok, a major customer of Oracle Corporation's cloud, will be banned from entering the United States unless it finds a US buyer by April. Former President Trump had stated that he was negotiating with four different potential buyers for TikTok's US business and a deal for the social video app could happen "very soon." According to a report by J.P. Morgan analyst Mark R. Murphy prior to the earnings announcement, TikTok represents an "ongoing uncertainty for Oracle Corporation." During Monday's earnings call, executives did not comment on TikTok. Oracle Corporation also announced a cash dividend of $0.50 per share, a 20% increase from the previous one. The dividend will be paid to registered shareholders on April 10 or April 23. Oracle Corporation's stock initially rose by 6% after the earnings announcement but later fell, ending at the close.The stock fell 3.22% on Monday, closing at $148.79 per share, down 4.11%. It has now dropped 11% year-to-date, in line with the overall market decline.Je suis dsol, je ne parle pas franais. (I'm sorry, I don't speak French.)