Oracle shares jump on Google and OpenAI deals despite earnings miss

• Oracle's results came in light, but management highlighted a deal to meet demand from Microsoft-backed OpenAI.
• Meanwhile, Oracle is bringing its database software to Google's cloud, and Larry Ellison said he's open to cutting a similar deal with Amazon Web Services.

Oracle shares jumped as much as 11% in extended trading on Tuesday after the software maker announced cloud deals with Google and OpenAI, despite fourth-quarter results that fell short of Wall Street expectations.

Here's how the company did in comparison with LSEG consensus:

• Earnings per share: $1.63 adjusted vs. $1.65 expected
• Revenue: $14.29 billion, vs. $14.55 billion expected

Oracle's revenue increased 3% year over year during the quarter, which ended on May 31, according to a statement. Net income, at $3.14 billion, or $1.11 per share, was down from $3.32 billion, or $1.19 per share, in the year-ago quarter.

The cloud services and license support segment generated $10.23 billion in revenue, up 9% and slightly below the StreetAccount consensus of $10.29 billion.

The company's cloud and on-premises licenses business contributed $1.84 billion in revenue. That's down 15% and lower than the $2.09 billion StreetAccount consensus.

Cloud infrastructure revenue came to $2.0 billion, up 42%, which was a deceleration from the 49% growth rate in the prior quarter. The cloud business remains smaller than rivals Amazon Web Services and Microsoft Azure but is growing faster.

With respect to guidance, Oracle sees fiscal first-quarter earnings of $1.31 to $1.35 per share and 5% to 7% revenue growth. Analysts polled by LSEG were looking for $1.32 per share on an adjusted basis and $13.39 billion in revenue, which implies 7.6% growth.

Oracle said in a statement on Tuesday that it would bring its database to Google's cloud, with availability coming in November. Organizations will be able to deploy workloads in Google and Oracle cloud data center regions without being subject to data-transfer charges, Oracle said.

Last September, Microsoft said its clients would be able to use Oracle database from the Azure cloud.

"The adoption has actually been really, really strong," Clay Magouyrk, the Oracle executive vice president in charge of cloud infrastructure, said in an interview with CNBC on Tuesday.

The idea is to broaden out availability of Oracle's flagship database software even further.

"We would love to do the same thing with AWS," Larry Ellison, Oracle's co-founder, chairman and technology's chief said on Oracle's Tuesday earnings call. AWS, which stands for Amazon Web Services, is the world's leading public cloud.

Many e-commerce companies depending on Oracle's database would like to embrace AI to deliver a better shopping experience and conversational commerce, Google Cloud CEO Thomas Kurian, himself a former top-ranking Oracle executive, told CNBC. "It used to be quite complex for them to do that. Now it will be trivial for them to do that."

In a separate statement, Oracle said it's partnering with Microsoft and OpenAI to deliver supplemental computing capacity.

"Microsoft remains OpenAI's exclusive cloud provider and partnered with them to form this deal with Oracle to extend Azure AI capacity," a Microsoft spokesperson said.

Ellison said on the earnings call that OpenAI will draw on Oracle cloud infrastructure, including Nvidia graphics processing units, to train AI models, but in an X post hours later, OpenAI indicated that was not the case.

"The partnership with OCI enables OpenAI to use the Azure AI platform on OCI infrastructure for inference and other needs," OpenAI wrote. "All pre-training of our frontier models continues to happen on supercomputers built in partnership with Microsoft."

OpenAI added that its strategic cloud relationship with Microsoft hasn't changed.

Even so, Oracle must do work to set up servers and other equipment that can handle the new work from OpenAI.

"We are working as quickly as we can to get cloud capacity built out, given the enormity of our backlog and pipeline," Oracle CEO Safra Catz said on the conference call.

Ellison said the company is building some of the world's largest data centers.

"Some are getting close to, dare I say it, a gigawatt, which is a pretty good-sized city or one enormous AI cloud training data center," Ellison said.

During the quarter, Oracle said its database software would be available in five additional Azure regions, bringing the total to 15. Oracle also announced generative AI features coming to its Fusion cloud applications for supply chain and human resources.

Plus, Oracle left the advertising business in the quarter, which had declined to around $300 million in revenue during the fiscal year, Catz said. The database vendor had spent billions acquiring marketing companies such as BlueKai and Moat in years past, but updates on momentum have been infrequent. In March 2020, Catz told analysts that the Data Cloud unit was seeing revenue growth in the low single digits.

Notwithstanding the after-hours move, Oracle stock has gained 18% so far this year, while the S&P 500 index is up about 13% over the same period.

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