Prepare for Oracle shares to take breather after triumphing as one of the hottest artificial intelligence plays of 2024, Wall Street says. The stock tanked 7% after posting fiscal second-quarter results after the bell Monday that missed Wall Street’s estimates on the top and bottom lines. The company also offered up a weak outlook. Oracle has outperformed this year as investors bet on infrastructure cloud players to benefit as companies hunt for strong computing to power data-hungry AI workloads. That’s put shares on pace for their best year since 1999 , with a nearly 81% year-to-date gain. ORCL YTD mountain Shares this year But the stock could face pushback from here after its monstrous run, according to some Wall Street firms. “We expect shares to trade off, as despite some modest reacceleration in [Oracle cloud infrastructure, or OCI], we’re still not seeing meaningful upside to total cloud revenue, or consolidated revenue/EPS, which likely drives muted estimate revisions,” wrote Citi’s Tyler Radke. The analyst retained his neutral rating and 2024 estimates, saying that a light quarter suggests a “steeper ramp” in revenue and cloud expectations. Morgan Stanley’s Keith Weiss also sees a murky setup for shares given the disappointing results and guidance, saying that the company will “face a higher bar.” “With [free cash flows] increasingly pressured by rising capex, shares likely remain range bound as investors assess whether bookings momentum can return,” he said, maintaining an equal weight rating. Bank of America’s Brad Sills reiterated that Oracle’s spending is a concern as gross margins could face some near-term pressure. Industry graphics processing shipment shortages also create some unpredictability, he said. Despite a shiny long-term outlook, JPMorgan’s Mark Murphy also sees a “balanced” risk-reward at these levels. He retained his neutral rating and $140 price target, implying about 26% downside from Monday’s close. “The success of the OCI ramp is necessitating substantial cloud infrastructure CapEx investments, negatively impacting FCF, which hinders an important valuation backstop, but ultimately we view this as a trade-off for potential revenue growth in the longer term,” he wrote.
