Oracle shares rise 10% on AI demand, new deals with Google and OpenAI

Larry Ellison, Oracle's chairman of the board and chief technology officer, delivered a keynote speech at the 2019 Oracle OpenWorld in San Francisco on September 16, 2019.

Justin Sullivan | Getty Images

Oracle shares rose more than 10% on Wednesday, a day after the company reported fourth-quarter results and cloud deals with Microsoft-backed OpenAI and Google.

The company reported quarterly revenue of $14.29 billion, up 3% from a year ago but below the $14.55 billion that analysts had expected, according to LSEG. Oracle earned adjusted earnings per share of $1.63, compared with the $1.65 expected by analysts.

Oracle also reported $98 billion in remaining performance obligations (RPOs), which represent the revenue the company expects to receive from contracts in future quarters, in the fourth quarter. In a company release, CEO Safra Catz said the company closed large sales deals in the third and fourth quarters primarily due to demand for using Oracle's cloud to train artificial intelligence models.

In tandem with that effort, Oracle announced a partnership with Microsoft and OpenAI to provide the startup with additional computing power, and it also announced it would bring its database to Google Cloud.

Citi analysts said Oracle's fourth-quarter revenue slump was offset by “strong growth in RPO orders.” They said the $98 billion in open backlog is hard to ignore, but they'd like to see a better indication of how it will translate directly into revenue.

“Taking a step back, we see mixed results,” the analysts wrote in a Tuesday note.

UBS analysts said the highlight of Oracle's performance was “a staggering $18 billion increase in backlog compared to last quarter.” While they noted the company missed several “key” metrics, they agreed with another investor who said the quarter's results reflect more of a story than numbers.

“The AI ​​narrative has enough power to drive emotions high,” they said in a note on Wednesday.

UBS reiterated its buy recommendation on the stock.

Morgan Stanley analysts said that while Oracle's quarterly results were mixed, “near-term AI builds are likely to win and sustain the stock's momentum.” Still, they said, longer-term questions remain about the nature of the contracts Oracle is winning and the impact on gross margins.

“These impressive orders, along with the addition of a major customer like OpenAI, will certainly put Oracle in the spotlight as investors focus on vendors participating in the buildout of GenAI infrastructure,” the analysts wrote in a note on Wednesday.

CNBC's Michael Bloom and Jordan Novett contributed to this report.

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