On Thursday, September 10th, Oracle announced its first-quarter earnings, with both revenue and profits surpassing Wall Street expectations, and its free cash flow consumption lower than anticipated. The financial report has reassured investors of the substantial returns on their investments in the field of AI by the company. This has not put pressure on its balance sheet and has driven the company’s stock price up by around 4% in after-hours trading.
Oracle’s stock price has dropped by over 21% so far this year. However, a significant increase in the “Backlog,” symbolizing future revenue momentum, has successfully reversed the market’s pessimistic sentiment towards the company.
Benefiting from the surge in enterprises’ spending in the AI sector, which has driven strong demand for cloud computing services, Oracle reported a nearly 30% year-on-year increase in first-quarter revenue to $19.35 billion, higher than analysts’ expectations of $19.14 billion. Additionally, adjusted earnings per share (EPS) reached $1.92, exceeding the market’s forecast of $1.74, and net profit increased from $2.93 billion in the same period last year to $4.68 billion.
Among its business segments, cloud revenue soared by 62% to $11.61 billion, while Infrastructure as a Service (IaaS) revenue doubled to $7.4 billion, significantly surpassing the market’s expectation of $7.09 billion.
Oracle has been actively expanding its AI data center infrastructure to secure more enterprise contracts. In the first quarter, Oracle added over $30 billion in AI cloud contracts, pushing its Backlog to $664 billion, higher than analysts’ previous prediction of $639.89 billion. The company anticipates that half of the backlog orders will convert into actual revenue within the next 36 months.
Most notably, Oracle mentioned in its earnings report that the newly signed revenue contracts do not require significant capital investment in purchasing chips, allowing the company to maintain its annual capital expenditure target of $90 billion to $95 billion.
Hilary Maxson, Oracle’s Chief Financial Officer, stated during a media briefing, “The vast majority of orders are conducted through customer prepayments, bring your hardware (BYOH) setups, and similar models that do not require Oracle to allocate additional capital.”
“For Oracle and its clients, the return on investment (ROI) in AI has started to materialize, and customers are voting with their wallets. However, Oracle must continue to prove to the outside world that its backlog growth is not solely reliant on OpenAI,” noted Rebecca Wettemann, CEO of the technology research and consulting firm Valoir.
In recent disclosures of their financial reports, Google, Amazon, Microsoft, and Meta, the parent company of Facebook, indicated substantial investments in constructing data centers, acquiring advanced chips, and sustaining the massive electricity required for operations, resulting in a decade-low free cash flow for them.
This scenario has raised concerns among many investors about Oracle’s surging capital expenditures possibly dragging down its free cash flow. The company’s total debt currently stands at $125 billion, with its capital expenditure for the quarter skyrocketing from $8.5 billion in the same period last year to $28.5 billion. However, Oracle emphasized that $11.36 billion of these expenditures were covered by customer prepayments.
Moreover, Oracle forecasts a revenue growth rate of 30% to 34% for the second quarter, with adjusted EPS ranging from $1.85 to $1.93 (market consensus $1.89). The company has also raised its full-year 2027 EPS forecast from $8.05 to $8.10 (market forecast $8.07) and expects annual revenue to reach at least $90 billion (market forecast $89.76 billion).