The shares of cloud computing titan Oracle experienced a more than 10 percent tumble during trading after the company’s earnings report fell short of what analysts had forecast for the recently ended quarter.
The company reported $16.06 billion as revenue for the quarter, falling marginally short of the $16.21 billion target that had been forecast by analysts. The company’s revenue grew by 14% overall, while its business in the artificial intelligence segment surged by 68%. However, these stats weren’t sufficient to quell the concerns of investors that are becoming jittery about the possibility of an AI bubble burst as companies struggle to generate revenue from the massive investments made in AI.
OCI, or Oracle Cloud Infrastructure, is the department at the company that serves the AI industry. Developers rely on the services of this department to come up with innovative tech products, and this department helped the firm’s shares to surge to new highs this year. However, the less than expected revenue figures released on Wednesday did little to remove concerns about a possible AI bubble.
In September, the company won a much-coveted contract to supply cloud computing services to OpenAI. The $300 billion deal covers a period of 5 years. After its announcement, shares of Oracle surged and made Larry Ellison, the company’s chairman, the richest man on the globe for a short while. Since then, the company valuation has shed approximately 40% from its peak in the aftermath of that announcement.
Speaking during the recent earnings call, Ellison cautioned that the company needs to stay agile over the coming few years as many changes are bound to happen in the AI industry. He added that the company plans to buy lots of GPUs made by Nvidia, but stated that they would maintain what he referred to as “chip neutrality” and would be open to purchasing AI chips from other companies when need arises.
While Wall Street reacted negatively to the earnings report, many analysts say this was uncalled for because the company had demonstrated commendable growth. They say the current sentiment on AI was so bad that investors are willing to jump on any excuse, such as the minimal miss of earnings targets to conclude that investments in AI are overhyped.
The biggest source of concern is the apparent “circular financing” in which AI firms fund other firms to buy their products. This is in reference to deals similar to the one struck between Oracle and OpenAI. It remains to be seen how the shares of other major players in the AI industry, such as Microsoft Corp. (NASDAQ: MSFT), fare over the coming quarters amid concerns about a possible AI bubble that could pop.
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