Oracle’s Cloud Contracts Fail to Lift Stock Amid Concerns Over Costs

Oracle Corp. was recently in the spotlight with news about significant cloud-services contracts and a robust backlog, but its stock is on a downward trajectory, raising eyebrows among investors. Despite initial enthusiasm following the release of its fiscal third-quarter earnings, Oracle’s shares (ORCL) fell by 4.4% just a day later amid concerns about escalating costs related to expanding its data center infrastructure. In a reflection of the broader market dynamics, Oracle shares have shown a downward trend, down 14% in 2025, after experiencing a surge last year due to the artificial intelligence (AI) boom.

Mixed Earnings Report Highlights

The financial report released by Oracle revealed a mixed bag of results. Although the company boasted a remarkable $130 billion in backlogged contracts for cloud services, its earnings fell short of Wall Street’s expectations. The total revenue reported for the third quarter was $14.1 billion, which was approximately $200 million below what analysts had predicted.

Another red flag was the company’s guidance for the fiscal fourth quarter, which anticipated revenue growth of only 7.5% to 8%, compared to previous forecasts of double-digit growth. This sentiment was echoed by BNP Paribas analyst Stefan Slowinski, who noted the stark downgrade in expectations. The report undoubtedly offered bright spots with hefty contracts, but the pressure on profit margins, particularly concerning AI-related revenues, has raised alarms.

Analysts Weigh In on Oracle’s Outlook

Market analysts have had varied reactions to Oracle’s latest figures. According to Evercore ISI’s Kirk Materne, while Oracle’s substantial cloud contracts present a positive outlook, the growing concern over profit margins could dampen investor enthusiasm. He has revised Oracle’s price target down to $185 from $200 while still maintaining a “buy” rating. Materne’s estimate for fiscal 2026 earnings was also lowered slightly while increasing revenue growth expectations from 11.7% to 13%.

BofA analyst Brad Sills similarly adjusted his price target for Oracle, reducing it from $195 to $175. Sills highlighted that increasing capital expenditures are likely to exert pressure on both gross and operating margins as the company moves into fiscal 2026 and 2027. His assessment aligns with the growing trepidation surrounding Oracle’s licensing growth and its impact on financial performance.

Challenges Ahead: Data-Center Capacity and Competition

In a further analysis, Guggenheim Securities’ John DiFucci noted that his confidence in Oracle remains relatively higher compared to other software companies that depend heavily on AI monetization. Although he maintained a price target of $220 and a “buy” rating, he did revise his estimates downward, predicting a FY 2025 revenue of $15.6 billion instead of the previously expected $16 billion, and lowered his EPS forecast from $1.77 to $1.64.

One of the key factors contributing to Oracle’s earnings miss was attributed to bottlenecks in expanding data center capacity, as discussed by company executives. Additionally, a brief shutdown of TikTok—an application hosted on Oracle data centers—further impacted revenue projections.

Conclusion: Execution Is Key for Oracle

While Oracle’s robust pipeline of cloud contracts and the transformative potential of AI present substantial opportunities, the company faces significant challenges as it looks to execute its strategies efficiently. Analysts are cautious yet hopeful, believing that if Oracle can effectively manage its backlog and operational costs, the current downward trend may eventually reverse. As the market continues to evaluate Oracle’s performance against rising costs, investor sentiment may hinge on the execution capabilities of its management team in the months to come.

In summary, Oracle’s cloud services ambitions are impressive, but the road ahead will likely be fraught with difficulties that could impact its financial trajectory. Stakeholders will be closely monitoring Oracle’s forthcoming strategies in an evolving tech landscape.