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Oracle (ORCL -8%) is lower following its Q2 (Nov) earnings report last night. The company reported a slight EPS miss, its second miss in the past three quarters. Revenue rose 8.6% yr/yr to $14.06 bln, but that was also a bit light of analyst expectations. The Q3 (Feb) adjusted EPS guidance of $1.47-1.51 was also lower than expected. Oracle guided to Q3 revs of +7-9% (+9-11% CC), which we compute as $14.21-14.48 bln, which was also light, partly due to FX.

• The company noted that Q2 revenue, while it missed consensus, was at the high end of its constant currency (CC) guidance and EPS was actually $0.01 above the high end. These results are being driven by Oracle's largest and fastest revenue component, Cloud Services and License Support, which grew 12% yr/yr (+12% CC) to $10.8 bln and now represents 77% of total revenue.
• Oracle says its cloud is faster and less expensive than other clouds and that it remains the preferred cloud for AI workloads as well as for non-GPU cloud infrastructure services. In addition, Oracle says its ability to deploy its cloud in many sizes gives its customers flexibility. Also, its multi-cloud agreements with Microsoft, Google and AWS provide customers more choice in how they can migrate their Oracle databases to the cloud.
• Record level AI demand drove Oracle Cloud Infrastructure (OCI) revenue up 52% yr/yr. OCI consumption revenue was up 58% as demand continues to outstrip supply. Oracle said growth in the AI segment of its infrastructure business was extraordinary. GPU consumption was up 336% in the quarter, and Oracle delivered the world's largest and fastest AI supercomputer, scaling up to 65,000 NVIDIA H200 GPUs.
• Total Remaining Performance Obligations (RPO) was a bright spot in Q1 (Aug) and was again in Q2 at $97 bln, up 49% (+50% CC), although it was down slightly from +50% to $99 bln in Q1. Oracle says this growth reflects the growing trend of customers wanting larger and longer contracts. Notably, its cloud RPO grew nearly 80% and now represents nearly 75% of total RPO. Also, approximately 39% of the total RPO is expected to be recognized as revenue over the next 12 months as Oracle continues to see cRPO growth accelerate.
• Oracle continues to see excellent demand for its cloud services, which is evident in its RPO growth. And while this growth is stellar, Oracle noted that its pipeline is actually growing even faster and its win rates are growing higher. The recent win at Meta is a prime example of why Oracle expects that RPO will climb again in Q3. Meta was not booked in the Q2 quarter, only in Q3.

Overall, growth and demand look great. However, this was Oracle's second EPS miss in three quarters and revenue was light. The guidance shortfall seems to be largely driven by FX. Investors may also be a bit disappointed in the slight sequential decline in RPO, however, some of that is converting to revenue. Also, Oracle was particularly bullish about its pipeline, so we would not worry too much about that. Plus the Meta win should help boost RPO in Q3. Finally, the stock has been in a strong uptrend since its Q1 report, but this pullback could tempt some investors to get onboard.