Oracle Raises 2027 Outlook, Shares Jump 7% as AI Cloud Boom Drives Record Backlog...

Oracle shares jumped about 7% in after-hours trading Thursday after the cloud services provider reported stronger-than-expected first-quarter results, powered by triple-digit growth in its cloud infrastructure business as demand for artificial intelligence computing drives a major expansion of the company's data center footprint.

For the quarter ended in August, Oracle reported adjusted earnings of $1.92 per share, beating the $1.74 expected by analysts, according to Fiscal.ai. Revenue rose 30% from a year earlier to $19.35 billion, topping Wall Street estimates of $19.14 billion.

The results underline the important role AI infrastructure is playing in Oracle's growth strategy. The company is investing heavily in data centers, networking and graphics processing units to supply computing capacity to some of the world's largest technology companies, including OpenAI, Nvidia, Uber, Amazon Web Services and Microsoft Azure.

Oracle's cloud business was the strongest part of the quarter. Cloud revenue increased 62% year over year to $11.6 billion, slightly ahead of the $11.51 billion expected by analysts.

Cloud infrastructure was even stronger. Revenue more than doubled to $7.4 billion, representing growth of 121% and exceeding analyst forecasts ranging from $7.09 billion to $7.19 billion.

The scale of Oracle's infrastructure expansion is growing enormously. The company added 850 megawatts of data center capacity during the quarter and delivered more than 300,000 GPUs to customers. Oracle also completed its planned Azure and AWS regional expansion, bringing its footprint to 70 multi-cloud database regions and 119 availability zones, Chief Executive Officer Clay Magouyrk said during the earnings call.

The figures show how Oracle is positioning itself differently from its traditional image as a database and enterprise software company. AI companies need enormous quantities of computing power, and Oracle is attempting to capture that spending by becoming an important infrastructure supplier rather than competing only at the software layer.

The opportunity is potentially enormous, but it also requires Oracle to commit unprecedented amounts of capital before the resulting revenue and cash flows are fully realized. That tension was evident in the company's remaining performance obligations, or RPO. Oracle booked more than $30 billion in additional AI cloud contracts during the quarter, lifting its total backlog to $664 billion.

Maxson said Oracle now expects about half of its RPO to convert into sales over the next 36 months. If that conversion occurs as planned, the backlog provides substantial visibility into future revenue and reinforces the argument that the company's massive infrastructure investments are being supported by contracted customer demand.

The structure of the new contracts is also important because Oracle said the additional $30 billion in AI cloud commitments would not require it to change its existing capital-raising plans. But that does not eliminate the company's financing challenge, however. It means the latest contracts are not expected to create additional capital requirements beyond what Oracle has already incorporated into its plans.

$28.5 Billion Quarterly Capex Highlights AI Infrastructure Cost

Oracle spent $28.5 billion on capital expenditures during the quarter as it accelerated construction and deployment of AI infrastructure. The company maintained its forecast for $70 billion in capital spending for the full fiscal year, while planning an additional $20 billion to $25 billion in prepayments for essential components.

That spending illustrates the unusual economics of the current AI infrastructure cycle. Oracle can secure enormous cloud contracts before all of the associated infrastructure is operational, but it must spend heavily on data centers, power, networking equipment and GPUs to fulfill those commitments.

The result is a widening gap between reported earnings and cash generation.

Oracle completed a previously announced $20 billion at-the-market equity offering during the quarter, while total debt stood at $125 billion. Heavy investment also kept free cash flow negative.

The financing requirements will therefore remain a key issue for investors. Oracle has demonstrated that it can attract customers and secure long-term AI contracts, but investors must also determine whether those contracts will ultimately generate returns that justify the cost of building the infrastructure needed to serve them.

The company's $664 billion RPO provides considerable revenue visibility, but backlog should not be treated as equivalent to cash flow. The timing of customer deployments, infrastructure costs, financing expenses and the economics of individual contracts are expected to determine how much of that contracted revenue translates into shareholder returns.

Oracle's traditional software business also showed why the AI transition carries risks. Software revenue declined 3% to $5.5 billion, slightly below the $5.61 billion consensus estimate.

That decline suggests that Oracle's growth is increasingly being driven by infrastructure rather than its mature software operations. The shift could produce a substantially larger addressable market, but it also moves the company toward a more capital-intensive business model.

Oracle Raises Fiscal 2027 Outlook

Oracle nevertheless delivered a strong outlook for the second quarter. The company expects total revenue to grow between 30% and 34%, compared with analysts' expectation of about 32%. Adjusted earnings are projected at $1.85 to $1.93 per share, against a consensus of $1.89.

Cloud revenue is expected to increase between 65% and 71%.

For the full fiscal year 2027, Oracle raised its revenue target to at least $90 billion, above the $89.76 billion analyst consensus.

The guidance indicates that management expects AI infrastructure demand to remain strong enough to sustain rapid growth beyond the current quarter. That is important because Oracle's current valuation depends on expectations that AI-related cloud revenue will become a much larger contributor to the business.

The market's after-hours reaction suggests investors were encouraged by the combination of strong cloud growth, massive new contracts and higher revenue expectations. Yet the 7% gain needs to be viewed against a much weaker year-to-date performance. Oracle shares remain down 21.2% this year, reflecting investor concerns about the scale of its capital spending, financing needs and the amount of future growth already embedded in expectations.

Retail sentiment on Stocktwits was nevertheless "extremely bullish," accompanied by "extremely high" message volumes.

The divergence between the stock's year-to-date decline and the latest retail enthusiasm captures the debate surrounding Oracle. Investors now agree that AI infrastructure is creating a major growth opportunity for the company.

Oracle is effectively making a leveraged bet on the continued expansion of AI computing. Its $664 billion backlog and accelerating cloud revenue provide evidence of strong demand, while its $28.5 billion quarterly capital expenditure and $125 billion debt load demonstrate the financial cost of meeting that demand.