Oracle shares rose 7% in extended trading on September 10 after the company reported stronger-than-expected quarterly results, driven by surging demand for its AI cloud services. The software giant topped Wall Street estimates for revenue and earnings, with cloud infrastructure revenue more than doubling year-over-year.
Oracle reported $19.35 billion in revenue for the fiscal first quarter, up nearly 30% from the prior year, while adjusted earnings per share reached $1.92, exceeding analyst expectations of $1.74. The company also lifted its annual profit forecast to $8.10 per share for fiscal 2027, up from the prior estimate of $8.05.
Oracle’s revenue backlog—a key indicator of future earnings—jumped to $664 billion, surpassing analyst estimates of $639.89 billion. The company attributed this growth to enterprise spending on AI cloud services, with $30 billion in new AI cloud contracts booked in the quarter. Oracle’s finance chief, Hilary Maxson, noted that most of these contracts were structured via prepayments, customer-financed hardware, or similar models, reducing the need for additional capital outlays.
The company maintained its capital expenditure (capex) forecast of $90 billion to $95 billion through fiscal 2027, despite a 285% year-over-year increase in quarterly capex to $28.5 billion. Oracle has financed its AI infrastructure expansion through tens of billions in debt, with $125 billion in total debt as of the latest quarter. While free cash flow remained negative at $5.4 billion, the company emphasized that its data center buildout is converting backlog into revenue, with 850 megawatts of capacity added in the quarter.
Oracle’s AI Push: Revenue Growth vs. Financial Trade-offs
Strong Cloud Demand Drives Revenue Surge
Oracle’s cloud revenue soared 62% year-over-year to $11.61 billion, outpacing analyst expectations. The company’s cloud infrastructure segment, in particular, saw 121% growth, signaling robust adoption of its AI services. Oracle’s data center expansion—including the addition of 850 megawatts of capacity—has positioned it as a competitor to hyperscalers like Amazon, Microsoft, and Google.
Analysts noted that Oracle’s revenue backlog conversion—where contracted future revenue becomes realized sales—rose significantly, with half of the current backlog expected to convert within 36 months. This suggests that Oracle’s AI investments are beginning to generate returns, easing concerns about its high capex spending.
Financial Pressures: Debt and Cash Flow Concerns
Despite the revenue beat, Oracle faces financial headwinds. The company’s debt load increased to $125 billion, and its negative free cash flow of $5.4 billion raised questions about long-term sustainability. In July 2024, S&P Global downgraded Oracle’s credit rating, citing weak cash flow and rising business risk.
Oracle’s co-CEO Clay Magouyrk emphasized that the company’s financing models—including supplier financing, customer prepayments, and "bring-your-own-hardware" deals—help offset capex costs. However, the company’s lower credit rating compared to rivals like Microsoft (which kept its capex forecast unchanged in July) remains a point of investor scrutiny.
Market Reaction and Future Outlook
Oracle’s stock, which had fallen 22% year-to-date, rebounded with the earnings report. The company’s second-quarter guidance calls for 30% to 34% revenue growth and adjusted earnings per share between $1.85 and $1.93. Analysts expect fiscal 2027 revenue to reach at least $90 billion, with adjusted earnings per share projected at $8.10.
The company’s Stargate project, a major AI infrastructure initiative, has faced reported delays due to labor shortages, permitting issues, and power availability constraints. However, Oracle stated that no delays have been confirmed in its fiscal 2027 outlook.
Oracle’s latest results reflect a balancing act: aggressive AI investment is driving revenue growth, but high debt and negative cash flow continue to weigh on investor confidence. The company’s ability to convert backlog into revenue while managing financial risks will determine its long-term position in the AI cloud market.