Oracle's Gen2 AI infrastructure far exceeds supply

Oracle announced Monday that it will soon make a joint announcement with chip giant NVIDIA and beat estimates for quarterly profit, buoyed by boom demand for generative AI, sending shares up nearly 14% in after-hours trading.

Cheaper offerings than the competition
The 46-year-old database giant Oracle is seeking to raise its profile as a cloud computing provider by offering lower-cost offerings than rivals such as and partnerships with Microsoft and NVIDIA, the leading maker of AI chips. "We expect to continue to win large contracts to reserve cloud infrastructure capacity as demand for our Gen2 AI infrastructure far outstrips supply - despite the fact that we are opening new cloud data centers and expanding existing ones very, very quickly," said CEO Safra Catz.

Joint announcement with NVIDIA planned for next week
According to CEO Catz, customers are increasingly recognizing the value that OCI offers, not only in terms of cost, but also in terms of performance, security and support. CEO Catz also emphasized that 40 new AI customers with potential revenues of over $1 billion have already been signed up, but are not yet integrated into the network. The decision to choose Oracle and its services, he said, was based on several factors: expertise in running critical workloads, unique AI capabilities, deployment flexibility and multi-cloud offerings. Oracle executives mentioned NVIDIA several times during their call with analysts and said a joint announcement will be made in the coming week.

Q3 earnings of $1.41 per share above analyst consensus
Excluding certain items, the company reported Q3 earnings of $1.41 per share, up 16% and above analyst consensus of $1.38 per share. "While the results for the quarter were merely in line with expectations, investors are excited about the new business Oracle won during the quarter," said Gil Luria, a research analyst at D.A. Davidson. Remaining performance commitments, the most popular measure of booked revenue, rose 29% year-over-year, which Luria said bodes well for upcoming results.

Difficulties in Cerner's transition to the cloud
However, revenue of $13.28 billion for the three months ended Feb. 29 was slightly below analysts' average estimate of $13.30 billion. The company expects revenue growth to accelerate as it addresses supply bottlenecks and expands capacity, particularly in fiscal '25. Oracle has faced "significant headwinds" with its acquisition of Cerner, which offers one of the most widely used electronic health record (EHR) systems. There are difficulties with Cerner's transition to the cloud and the need for cost reductions, including layoffs.

However, Oracle is confident in the long term and is working to make Cerner's integration with Oracle's cloud services successful. Oracle wants to augment Cerner with AI and machine learning to, for example, support diagnoses, provide treatment recommendations and improve patient care through personalized medicine.

Analysts have raised their price target slightly
Jefferies was satisfied with Oracle's development and confirmed its buy recommendation for the share. The analysts raised their price target from $145 to $150. Barclays also raised its price target from $140 to $147 and maintained its "Overweight" rating. He emphasized that the capital expenditures together with the outstanding performance obligations (RPO) point to accelerated growth for Oracle in the cloud business.


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