Oracle's Executive Chairman and Chief Technology Officer, Larry Ellison, has addressed investor concerns that artificial intelligence might suppress spending on traditional business software, a worry that has significantly impacted the stock prices of companies like Salesforce, ServiceNow, and Workday. Oracle executives stated this week that enterprise adoption of Oracle's AI tools indicates the company is immune to the so-called "SaaS winter."
During an earnings call earlier this week, Ellison explained that hospitals could integrate AI agents into Oracle applications to automate various staff tasks. These include nurse training, matching radiologists with patients, and interfacing with federal regulators and pharmaceutical companies.
"This is why we consider ourselves disruptors," Ellison stated in the meeting. "This is why we believe the SaaS winter applies to others, but not to us."
Oracle's Co-CEO, Mike Sicilia, speaking at the same meeting, highlighted another advantage: AI startups, including those from OpenAI and xAI, are training their models on Oracle's cloud services. He noted that Oracle does not charge customers extra for AI functionalities within its software. This may be because Oracle, through its experience collaborating with AI labs, can operate AI on its own cloud platform at a low cost.
Regardless of the reason, offering AI features for free is an unusual business move for Oracle, at least among enterprise software giants. Microsoft has also claimed to reduce AI operating costs on its cloud platform, but unlike Oracle, it still charges customers significant fees for AI features in its software. Salesforce also charges for its Agentforce AI tool, although this does not appear to have boosted the overall revenue of the sales software provider.
The statements from Oracle's executives may not fully alleviate investor concerns about how AI will impact the future of enterprise business software. Even if AI enhances Oracle's value to customers, this has not yet been reflected in the company's performance data.
Oracle disclosed for the first time that revenue growth for several of its cloud application categories decelerated by at least several percentage points sequentially last quarter. This includes enterprise resource planning, customer management, and supply chain management applications.
Only the human resources application category saw an acceleration in growth.
Overall, Oracle's cloud application revenue grew 13% last quarter, an improvement of 2 percentage points from the previous quarter. However, growth remained flat when adjusted for foreign exchange fluctuations.
Oracle executives did not explain the reason for the flat growth on a constant currency basis. Nevertheless, there are reasons to believe business may recover. Sicilia pointed out that "deferred revenue" for cloud applications grew by 14%—representing payments from customers for software not yet activated—which signals potential accelerated growth in the coming quarters.
Despite this, many questions remain about AI's impact on the software industry. Sicilia did not directly address how Oracle plans to handle situations where customers use AI agents from other companies to access data within its databases. The rise of such AI, including super-agents capable of using enterprise applications like humans, will eventually force major enterprise software providers to formulate significant responses.
For example, the CEOs of Workday and HubSpot have already indicated they will take measures to monetize the use of AI agents interacting with their applications.
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