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Oracle Sell-Off Could be Due to Higher-Than-Estimated Capex Outlook, UBS Says

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Oracle Sell-Off Could be Due to Higher-Than-Estimated Capex Outlook, UBS Says

Oracle's (ORCL) post-earnings sell-off could be due to its higher-than-expected capital expenditure outlook and its largely unchanged earnings and sales guidance for the year, UBS Securities said Thursday.

Late Wednesday, the cloud computing company maintained its fiscal 2027 revenue outlook at $90 billion and raised its non-GAAP earnings guidance to $8.05 a share. Its fourth-quarter results surpassed Wall Street's estimates, driven by rising demand for cloud infrastructure amid an artificial intelligence boom.

Oracle shares were down 11% in Thursday afternoon trade. The stock has lost 8.4% in value so far this year.

"The (latest) stock reaction may be rooted in a (2027) capex guide of ($90 billion to $95 billion) that was above the (roughly $85 billion) buy-side consensus," as well as its full-year top- and bottom-line projections, which were basically reaffirmed, UBS analysts Karl Keirstead and Radi Sultan said in a note to clients Thursday.

The brokerage maintained its buy rating and a $285 price target on the Oracle stock.

"Importantly, Oracle said that peak dollar capex will be in (2027/2028), the first major cloud (infrastructure) provider to clarify this and motivating us to trim our (2029 onward) capex estimates," the UBS analysts said.

The company's latest quarterly results showed constant currency revenue growth of 20%, which was at the high end of the guide. Its cloud infrastructure growth of 92% was in-line with expectations, while margins and EPS "solidly beat," Keirstead and Sultan said.

For the ongoing quarter, Oracle expects reported revenue to grow by 27% to 29%, with cloud sales seen rising 58% and 64%.

"The real upside was in the (first-quarter) cloud guide, which assuming stable 9% (software-as-a-service) growth implies outstanding infra/OCI growth of (about) 120%, well above our (105% growth) estimate, as the pace of AI capacity additions accelerates to a full 1 (gigawatt) in the quarter," Keirstead and Sultan said Thursday.

Price: $177.85, Change: $-23.41, Percent Change: -11.63%

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