Software titan Oracle (ORCL 1.17%) let some of its newer shareholders down recently with a disappointing report from its cloud computing segment. Shares fell about 10% immediately following the recent earnings update. For Oracle shareholders who have been around a while, though, 2023 has been nothing to complain about. Despite the recent drop, the stock is still up 23% with just weeks to go until the new year, capping off a market-beating total return (including reinvested dividends) of 250% over the last decade.

Does this recent sell-off suggest it might be time to buy Oracle stock for 2024? Let's take a closer look and try to find an answer.

What's wrong with Oracle now?

Oracle reported its financial results this week for the second quarter of fiscal 2024 (the three-month period that ended in November 2023), and it was another solid quarter. Total revenue increased 5% year over year to $12.9 billion, driven by cloud computing segment growth of 25% to $4.8 billion. Breaking the cloud segment down further revealed the following:

  • Infrastructure-as-a-Service (IaaS) revenue is up 52% year over year to $1.6 billion, further validating Oracle's early adoption of Nvidia's (NVDA 2.15%) artificial intelligence (AI) systems and software.
  • Software-as-a-service (SaaS) revenue -- including the Cerner healthcare software business, which was acquired in the summer of 2022 -- rose 15% year over year to $3.2 billion/

Even better, generally accepted accounting principles (GAAP) earnings per share rose 41% year over year, or 11% on an (non-GAAP) adjusted basis. That's exactly the type of profit growth performance that should please investors in a big mature business like this one.

So why the post-earnings stock slump? Hyperfocus was turned to the cloud segment, where CEO Safra Katz and Chief Technology Officer Larry Ellison had said a few months ago to expect cloud growth of at least 29%, resulting in overall revenue growth of up to 7%. Adjusted earnings-per-share growth did wind up at the high end of the outlook anyway, but the market didn't seem impressed enough with the outlook. Such are the vagaries of how the market rationalizes such things in the short term.

Oracle's new chapter could be a longer read than once hoped for

With its pivot to cloud-based infrastructure and services, paired with big bets on generative AI, Oracle has established itself in the ever-evolving fabric of the tech sector in the years ahead. Nevertheless, as I pointed out in October following the company's AI event, some investors were expecting elevated growth for Oracle Cloud would kick in far sooner.

Put simply, Oracle's buildout of AI infrastructure (again, thanks in no small part to Nvidia) is going to take time. And that infrastructure trickling down to higher software service growth may take even longer. Additionally, there's been a general slowdown in cloud software spending in 2023, and Oracle (except for its IaaS segment) hasn't been exempt.

But here's the good news: Even at just a mere single-digit revenue growth rate, Oracle is still stoking low-teens-percentage earnings-per-share growth from its lumbering cloud operation. Q3 fiscal 2024 (which ends in February of calendar year 2024) adjusted earnings per share are expected to grow 10% to 14% year over year.

And after yet another tumble, Oracle stock now trades for about 16 times Wall Street analysts' estimates for next year's earnings, or about 22 times next year's expected free cash flow (which aligns a bit more closely with adjusted earnings). It's now a far more reasonable price tag than earlier in 2023 when Oracle's rate of expansion was being boosted by the integration of Cerner, as well as generative AI hype.

At this juncture, Oracle stock doesn't exactly look like a crazy good deal for 2024, but the value looks pretty decent for investors wanting to buy and forget an all-weather cloud stock ready for the AI era.