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Oracle needs to reach for the cloud: Analyst

After missing earning estimates for three straight quarters, Oracle needs to prove it can grow in the cloud, Nomura Securities analyst Rick Sherlund told CNBC on Wednesday.

The tech company reports fiscal second-quarter results after the bell on Wednesday. Sherlund advised investors to pay close attention to what Oracle officials say about growth in the cloud computing space during the conference call Wednesday evening.

About 5 percent of Oracle's revenue comes from the cloud right now, and Sherlund estimates that revenue will increase by 40 percent this quarter.

"That really will determine where the stock goes," he said.

Despite the series of earnings misses, Oracle stock has had a hard time staying down because of its relative cheapness, Sherlund said.

"The stock will go down but it's like 'Whac-A-Mole,'" Sherlund said. "It just seems to want to come back up because the shares are fairly inexpensively priced."

Analysts are expecting earnings per share of 68 cents compared with 69 cents a share in the same quarter last year, according to Thomson Reuters.

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A sign in front of Oracle’s headquarters is shown in Redwood Shores, Calif.
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A sign in front of Oracle’s headquarters is shown in Redwood Shores, Calif.

The company faces major headwinds going into the new year, Sherlund said. Customers don't seem excited about Oracle's on-premise business, and the company faces stiff competition from new data-crunching technologies.

Another headwind facing Oracle is currency rates, Sherlund added.

"Currency will be a 2 to 3 percent headwind so we are not looking for upside to estimates, but rather we will need to look at the constant currency growth rates. The guidance will be slower than previously, given the greater FX headwind over the next two to three quarters," said Sherlund.

Oracle faces competition from EMC, IBM and Hewlett-Packard. This is the first quarter with Mark Hurd and Safra Catz acting as co-CEOs and without Larry Ellison, who built the company, at the helm.

"It's all going to be about can they cross the chasm—this big technology chasm—and make it to the cloud?" Sherlund said.

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