Oracle Feeds Off AI Leftovers

Talk about fighting for crumbs. Microsoft and OpenAI announced Tuesday that they’ll tap Oracle’s cloud servers for “additional capacity for OpenAI.” That counts as great news for Oracle, sending its stock up 9% in after-hours trading. Investors overlooked the fact that Oracle also reported Tuesday that its cloud revenue growth slowed by several percentage points from the previous quarter, to 20% in the three months ended May 31. The slowdown is despite the fact that the much bigger cloud providers, Amazon, Microsoft and Google, reported a few weeks ago that their revenues had accelerated for the quarter ended March, thanks in part to demand for artificial intelligence services. 

Perhaps the slowdown is why Oracle has the spare capacity to offer Microsoft in the first place! What caught investors’ attention was Oracle’s promise that it will soon be demonstrating a significant lift from AI. Oracle CEO Safra Catz noted that big cloud deals signed in recent months with everyone from Microsoft to Nvidia to Elon Musk’s xAI would lift Oracle’s overall growth rate into the “double digits” in the new fiscal year from just 6% in the year ended May. On a call with analysts, Catz said revenue from the Microsoft deals had only a small impact in the May quarter, but the impact would be “potentially 30 times as much” by the November-ending quarter of this year. Wall Street analysts reacted like fans at a Taylor Swift concert, with one congratulating Oracle executives for the company’s cloud “momentum.” Doesn’t take much to get a compliment from an analyst.