Oracle Stock Falls in Part Due to Cerner EHR Revenue Weakness

Oracle shares fell over 10 percent on Tuesday after the tech giant’s weak revenue forecast, in part due to its Cerner EHR business, according to reporting from Reuters.

Oracle stock has risen around 50 percent this year due to optimism that the rise in generative AI would boost cloud demand.

However, lower-than-expected revenue for the first quarter and a below-estimate prediction for the second suggest that the potential boost from generative AI could take longer to come to fruition.

The vendor, which is mainly known for its database software, has been working to catch up with cloud vendors such as Amazon Web Services, Microsoft's Azure, and Alphabet's Google Cloud as many businesses cut back on technology spending due to concerns about the economy.

Safra Catz, CEO of Oracle, also warned of near-term weakness in revenue growth at the Cerner EHR business, which Oracle acquired for $28.3 billion in June 2022. The company is currently moving customers in the Cerner unit to cloud subscriptions from license purchases recognized upfront.

"We continue to believe high single-digit growth might be unsustainable for Oracle given Cerner integration risks and formidable data center competition," Gil Luria, a DA Davidson analyst forecasted, as he cut his price target on the stock by 17 percent to $105.

However, most analysts exhibited a more positive outlook about the vendor, linking the share price decline to Oracle's rally prior to earnings.

"Shares were already up a lot recently so Q1 doesn't look like a short-term catalyst," Barclays analysts said.

They noted strong deferred revenue, AI backlog commentary, and some positive signs in the cloud business, as positives for Oracle.

According to LSEG data, at least 17 brokerages raised their price estimates on the stock, bringing the median view to $133, which is nearly five percent higher than the company's last closing price.

Oracle has a 12-month forward price-to-earnings ratio of 21.78, while the industry median sits at 15.42.