Oracle stock pops 10% on AI demand, new deals with Google and OpenAI

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Oracle chairman of the board and chief technology officer Larry Ellison delivers a keynote address during the 2019 Oracle OpenWorld on September 16, 2019 in San Francisco, California. 
Justin Sullivan | Getty Images

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

The company reported $14.29 billion in revenue for the quarter, up 3% year over year and shy of the $14.55 billion expected by analysts according to LSEG. Oracle’s adjusted EPS came in at $1.63 while analysts expected $1.65.

Oracle also reported $98 billion of remaining performance obligations (RPO) in the fourth quarter, which is a figure that represents the revenue that the company expects to receive from contracts in future quarters. CEO Safra Catz said the company signed large sales contracts over the third and fourth quarters primarily driven by demand to use Oracle’s cloud to train artificial intelligence models, according to a release.

Alongside its results, Oracle said it is partnering with Microsoft and OpenAI to help supply additional computing capacity for the startup. Oracle also announced it is bringing its database to Google Cloud.

Analysts from Citi said Oracle’s sluggish revenue for the fourth quarter was offset by “tremendous RPO bookings growth.” They said it is hard to ignore a $98 billion outstanding backlog, but they would like to see better signs of how it will convert directly to revenue.

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

UBS analysts said the highlight of Oracle’s results is its “extraordinary sequential backlog growth of $18 billion.” They note that the company missed some “key” metrics, but they agree with another investor who said this quarter’s results reflect more of a narrative story than a numbers story.

“The AI narrative is powerful enough to lift sentiment,” they said in a note Wednesday.

UBS reiterated its buy rating on the stock.

Morgan Stanley analysts said Oracle’s quarter was mixed, but the “near term AI build-out likely wins the day and sustains momentum in shares. Even so, they said they still have longer-term questions about the nature of the contracts Oracle is booking, and what the gross margin implications will be.

“As investors look to vendors participating in the build-out of GenAI infrastructure, these impressive bookings and the addition of a marquee customer like OpenAI likely puts Oracle more firmly on the radar screen,” the analysts wrote in a note Wednesday.

–CNBC’s Michael Bloom and Jordan Novet contributed to this report

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