Oracle’s $664 Billion AI Bet

The backlog, rather than the earnings figure, is the main story this quarter. Oracle's remaining performance obligations (RPO) increased to a record $664 billion. That is $209 billion higher than a year ago. This supports Oracle's shift from a traditional database company to one of the world's biggest providers of AI data-centre capacity.

The headline results were also strong. Total revenue rose 30% to $19.3 billion, while cloud infrastructure revenue more than doubled, increasing 121% to $7.4 billion.

The growth came from strong demand for AI training and related services. Oracle signed more than $30 billion in new cloud contracts and delivered over 300 000 GPUs during the quarter — almost three times as many as in the previous quarter. This puts Oracle in more direct competition with Amazon Web Services, Microsoft Azure, and Google Cloud.

However, this growth is very expensive. Capital spending reached $28.5 billion, which was more than the quarter's total revenue. Investors were reassured by the cash-flow result, which came in at -$5.4 billion, much better than the roughly -$9.6 billion analysts had expected. It also improved from the $11.5 billion outflow two quarters earlier. Customer prepayments and deals in which they provided their own hardware helped reduce Oracle's spending burden.

The main question now is whether Oracle can turn this record backlog into real cash while managing its rising debt, possible shareholder dilution, and the fact that a large part of the backlog may depend on one OpenAI contract.

Key Financial Metrics 

●     Total revenue: $19.3 billion, up 30% year on year

●     Net income: $4.7 billion, up 60%

●     Diluted earnings per share: $1.56, up 55%

●     Operating cash flow: $23.1 billion, up 184%

●     Free cash flow: negative $5.4 billion, compared with negative $0.4 billion a year earlier; better than the roughly negative $9.6 billion expected

●     Capital spending: $28.5 billion, compared with $8.5 billion a year earlier; about $11.4 billion was covered by customer prepayments

●     Dividend: Oracle completed a $20 billion at-the-market equity raise and kept its quarterly dividend at $0.50 per share

Cloud (IaaS + SaaS)

●     Total cloud revenue: $11.6 billion, up 62%

●     Cloud infrastructure (IaaS): $7.4 billion, up 121%

●     Cloud applications (SaaS): $4.2 billion, up 10%

Software (legacy licence + support)

●     Software revenue: $5.5 billion, down 3%, as customers continue moving to the cloud

Analysis & Outlook

Price Performance:

The stock was down more than 20% year-to-date and about 33% over the previous 12 months. In other words, the shares had given back much of the AI-driven rise seen earlier in the year.

The $0.50 quarterly dividend is a yield of about 1.3% at current prices.

What Could Move the Share:

Upside:

●     Backlog conversion — The $664 billion RPO is about nine to ten times Oracle's annual revenue. It supports a clear path toward at least $90 billion in 2027 revenue and $8.10 EPS. If Oracle shows that the backlog is turning into cash, investors may value the stock more highly.

●     OCI scaling — Cloud infrastructure revenue is growing at 121% and is expected to make up about 60% of revenue. Management plans to bring about 1 gigawatt of new capacity online this quarter, which could reduce the supply shortage that has limited new bookings.

●     Lower-than-expected cash burn — Free cash flow of negative $5.4 billion was better than the roughly negative $9.6 billion expected and improved from the previous quarter. About $11.4 billion of capital spending was covered by customer prepayments, and many customers provided their own hardware. Management said it does not expect to need another capital raise or issue new debt in the 2026 calendar year.

●     New products — The AI Data Platform and a healthcare system built around AI agents could create new, higher-margin sources of revenue.

Downside:

●     Cash burn — Press reports and analysts estimate 2027 capital spending at about $90 - $95 billion. This is a major concern while free cash flow remains negative, because investors are increasingly questioning whether the spending will produce acceptable returns.

●     Dilution and leverage — The $20 billion share sale increased the number of shares by about 5%. Oracle is also planning on roughly $40 billion in total 2027 financing. Total debt is about $125 billion, and interest expenses have risen 55%.

●     OpenAI concentration — A Bank of America estimate suggests that about half of the RPO may be linked to one OpenAI contract. Oracle has not disclosed this figure. If accurate, the backlog would be vulnerable to OpenAI's funding, competitive position, and pressure on AI prices.

●     Execution risk — Delays in building data centres, especially in New Mexico, shortages of GPUs, and planned job cuts could slow progress. Some industry experts also continue to question whether renting out GPUs will be profitable.

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** This article was prepared by BROKSTOCK analyst Maboko Seabi