Oracle shares rise as cloud infrastructure revenue jumps 121%

Oracle reported earnings before certain costs such as stock compensation of $1.92 per share, ahead of the $1.74 per share analysts expected. Revenue rose almost 30% to $19.35 billion, surpassing the analyst consensus estimate of $19.14 billion. Net income was $4.68 billion, up from $2.93 billion in the same period a year earlier.

For the current quarter, Oracle said it targets earnings of between $1.85 and $1.93 per share on revenue growth of between 30% and 34%. Wall Street is looking for earnings of $1.89 per share on sales of $21.2 billion, which would represent growth of 32%.

The cloud infrastructure unit, which rents AI servers to enterprise customers, was by far Oracle's fastest-growing segment. The rest of Oracle's business grew by just 3%. Oracle said it brought 850 megawatts of new data capacity online during the quarter. Capital expenditures rose to $28.5 billion from $8.5 billion a year earlier. The company ended the quarter with negative free cash flow of $5.4 billion, compared with negative $362 million a year earlier, and it carries $125 billion in debt. It competes with hyperscalers such as Amazon Web Services and Google, which have stronger cash positions and superior credit ratings.

Oracle's backlog now stands at $664 billion. Almost half of that comes from a single cloud infrastructure contract with OpenAI Group PBC, making Oracle's fortunes a proxy for sentiment around the AI startup, which is expected to go public soon. Sentiment around OpenAI has weakened, however, amid the rapid rise of competitor Anthropic PBC. Both OpenAI and Anthropic also face pricing pressure from less expensive open-weight models. Even after Thursday's after-hours rise, Oracle's stock is down 22% year to date, while the broader S&P 500 has gained around 11%. Oracle's non-OpenAI backlog has more than doubled over the past year, the report said.

Valoir analyst Rebecca Wettemann told SiliconANGLE that investors still have a legitimate reason to worry about Oracle's growing debt and lack of cash flow. She said Oracle needed to reassure investors that demand for its data centers is there and that it will have the resources to meet that demand given fluctuating input prices. She added that the remaining performance obligations, or RPO, number is strong and that GPU utilization numbers show Oracle is converting its backlog into recognized revenue.

Zacks Investment Management market strategist Brian Mulberry said Oracle clearly demonstrated that it is making the most of its capital expenditures and improving operationally by capturing revenue and higher margins along the way. He called it a very strong report that should help soothe some AI concerns in the market.

On a conference call, Chief Financial Officer Hilary Maxson responded to a Bloomberg report that a natural gas pipeline needed to power a new facility in New Mexico was running behind schedule. She said nothing known today would lead the company to believe New Mexico or any other sites are delayed relative to schedules included in its fiscal 2027 outlook. Chief Executive Clay Magouyrk said Oracle is also working to acquire an essential air permit in New Mexico. Oracle's software business added $5.55 billion in revenue during the quarter, down 3%, according to the report.