We're buying more shares of this emerging AI company on shortsighted weakness

Published Mon, Oct 23 202311:47 AM EDT

We're buying 75 shares of Oracle (ORCL) at roughly $103 each. Following Monday's trade, we will own 725 shares of ORCL, increasing its weighting in the portfolio to 2.72% from 2.45%. Oracle shares were up about 1% on Monday after falling 6% on Friday in reaction to the company's AI Executive Forum event. Many analysts were upbeat about Oracle's broader artificial intelligence opportunity. However, the stock sold off on concerns that the revenue contribution from AI workloads will take longer to recognize than previously thought, making it less likely to see the company deliver upside to its fiscal year 2024 revenue guidance. The lack of immediate revenue upside from AI was one of the main reasons why shares pulled back 13.5% on Sept. 12, the session following its after-the-bell earnings release. Despite beating expectations by 4 cents on adjusted earnings per share (EPS) of $1.19 in its fiscal 2024 first quarter, Oracle missed on revenue and gave a slightly weaker-than-expected fiscal Q2 revenue guide. ORCL YTD mountain Oracle YTD Still, the company noted strong demand for its AI services. On the company's Sept. 11 earnings call, Chairman and CTO Larry Ellison pointed out that AI development companies had signed contracts to purchase more than $4 billion of capacity in Oracle's Gen 2 cloud. When CEO Safra Catz appeared on "Mad Money" a week later, she pointed out that in the first week of the new quarter, the company booked another $1.5 billion just in AI workloads. Catz said, "We keep winning every single competition against others because our system's so much newer. We have access to the chips — and so, because it's so much newer, it is much faster." The sheer amount of business Oracle is booking because of AI is why we are willing to be patient in waiting for it to flow through to revenues. Whether we see a contribution start in fiscal year 2024 or 2025 is up for debate. Either way, those gains are coming, giving us confidence in management's ability to deliver on its fiscal 2026 financial goals. While we can't fault management for moderating near-term expectations around AI revenues, the stock has now pulled back about 20% from its pre-fiscal Q1 levels, making Friday's selloff look even more like an overreaction to us. (Jim Cramer's Charitable Trust is long ORCL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Traders works the floors at the New York Stock Exchange (NYSE) in New York on October 11, 2023.

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