Oracle Trips on Q3 Earnings & Sales Miss: Buy, Sell or Hold the Stock?

Oracle ORCL delivered a concerning performance in its third-quarter fiscal 2025 results, missing analyst expectations on both earnings and revenue fronts. The company reported non-GAAP earnings of $1.47 per share, missing the Zacks Consensus Estimate by 0.68%, while revenues of $14.13 billion lagged estimates by 1.59%. Though Oracle attempted to spotlight continued momentum in its Oracle Cloud Infrastructure (“OCI”) business, the numbers tell a different story — one of a company struggling to meet the lofty expectations baked into its elevated share price.This earnings miss comes at a particularly vulnerable time for Oracle investors, as the stock has already shed 13.5% year to date, creating a stark contrast to its remarkable 58% rally in 2024. The choppy after-hours trading following the earnings announcement, with shares initially jumping 6% before retreating 3.7%, reflects growing investor anxiety about Oracle's fundamental trajectory.Year-to-Date PerformanceImage Source: Zacks Investment ResearchGrowth Failing to Match Valuation PremiumPerhaps most troubling is Oracle's current valuation. The company trades at an EV/EBITDA multiple of 19.12x, substantially above the Zacks Computer-Software industry average of 15.57x. This premium suggests investors have already priced in exceptional future growth – growth that Oracle is increasingly showing signs of struggling to deliver.ORCL’s EV/EBITDA TTM Ratio Depicts Premium ValuationImage Source: Zacks Investment ResearchThe third-quarter results raise serious questions about whether Oracle can justify its rich valuation in a competitive cloud market. Despite enthusiastic remarks by ORCL about signing sales contracts for more than $48 billion in the third quarter and pushing remaining performance obligations (RPO) up 63% to more than $130 billion, the company's actual revenue growth remains modest at just 6% in USD (8% in constant currency) year over year.The Zacks Consensus Estimate for ORCL’s fiscal 2025 revenues is pegged at $57.64 billion, indicating year-over-year growth of 8.84%. The consensus mark for fiscal 2025 earnings is pegged at $6.21 per share, down a penny over the past 30 days. The figure indicates year-over-year growth of 11.69%.Image Source: Zacks Investment ResearchFind the latest earnings estimates and surprises on Zacks Earnings Calendar.Execution Issues Amid Capacity ConstraintsOracle's narrative around cloud leadership is being undermined by execution challenges. During the earnings call, management acknowledged that component delays have hampered cloud capacity expansion this year — a significant admission for a company positioning itself as a critical infrastructure provider for AI workloads. When competitors like Amazon.com AMZN-owned Amazon Web Services, Microsoft MSFT and Alphabet GOOGL-owned Google Cloud are rapidly scaling their infrastructure to meet surging AI demand, Oracle's supply chain challenges represent a competitive disadvantage that could cost it critical market share.Moreover, the company's capital expenditures ballooned to $5.9 billion in third-quarter alone, roughly equal to its operating cash flow for the quarter. This aggressive spending, which management projects will reach around $16 billion for fiscal 2025 (more than double last year's CapEx), is putting pressure on free cash flow, which declined 53% on a trailing 12-month basis.Warning Signs for InvestorsOracle's earnings miss alongside aggressive capital spending and slowing growth presents a concerning combination for investors. While management touts large AI-related contracts with companies like AMD, OpenAI, and Meta, the translation of these deals into meaningful revenue growth remains questionable.The company's reliance on a handful of major AI customers also introduces significant concentration risk. Rather than broad-based adoption across multiple industries, Oracle appears increasingly dependent on a small number of high-profile AI deals to maintain its growth narrative.Time to Sell Before Reality Sets InFor investors, the third-quarter results should serve as a wake-up call. Oracle's premium valuation leaves little room for execution missteps, yet the company is showing worrying signs of operational challenges. With cloud infrastructure competitors continuing to innovate rapidly and Oracle's growth failing to accelerate meaningfully despite massive capital investments, the fundamental case for the stock has weakened considerably.Furthermore, the company's modest 4% earnings growth (7% in constant currency) falls far short of justifying its elevated multiple. As reality begins to set in regarding Oracle's true growth trajectory, investors who benefited from the 2024 rally would be wise to take profits now before further disappointments potentially trigger a more significant valuation reset.Given these concerning trends, Oracle's Zacks Rank #4 (Sell) appears well-justified. Investors should consider exiting positions while the broader AI enthusiasm still provides support to the stock price rather than waiting for additional evidence of the growing disconnect between Oracle's ambitious narrative and its financial reality.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Oracle Corporation (ORCL): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks