Oracle (ORCL.N) shares fell 9% in premarket trading on Tuesday as another quarter of below-expectations cloud sales and a bleak forecast amplified concerns over the pace of growth at the business expected to benefit from a boom in generative AI.
Revenue growth at the firm's cloud infrastructure unit, which competes with industry heavyweights Amazon Web Services and Microsoft Azure, has slowed over the last three quarters.
"The lower OCI (Oracle Cloud Infrastructure) growth will worry investors as this is the main investment story," analysts at Barclays wrote in a note.
Oracle's shares have climbed 40% this year as investors bet that the rising adoption of generative AI, the technology behind popular chatbot ChatGPT, will drive growth for companies providing data center services.
The company, co-founded by billionaire Larry Ellison, has been investing heavily to build data centers as part of its strategy to become a cloud-based company.
Oracle on Monday blamed supply constraints for the weak results, with CEO Safra Catz saying that demand for the company's generative AI and cloud infrastructure services was increasing at "an astronomical rate."
Still, analysts raised concerns about the company's prospects. At least four brokerages cut their price targets on the stock following the results.
"Two consecutive quarters of cloud revenue shortfalls partially erode our confidence that a cloud transition can drive a sustainable top-line growth recovery," brokerage Piper Sandler said.
Total cloud revenue, which includes software, rose 25% in the second quarter ended Nov. 30, missing the company's expectations for a 29%-31% increase.
Weaker enterprise spending and intense competition from larger players were also a drag on overall results.
Oracle forecast third-quarter revenue growth, including health data software platform Cerner, to be in the range of 6%-8%. The mid-point of the forecast is below analysts' average estimate for growth of about 7.6%, according to LSEG data.
