Oracle Posts Strong Cloud Sales Growth Following AI Bookings

Bloomberg's Anurag Rana breaks down Oracles' strong earnings, as the tech company posted a stronger than expected report on multiple fronts. Oracles cloud sales grew on the back of massive contracts with artificial intelligence giants OpenAI and Meta, sending stocks up in the aftermarket.

Oracle Corp. shares soared as much as 15% on Wednesday after the software and cloud services company reported strong sales and issued an outlook that suggests little letup in demand for AI computing.

Revenue in Oracle’s closely watched infrastructure business jumped 84% to $4.9 billion in the three months ended Feb. 28, the company said Tuesday in a statement, surpassing the 79% that analysts had expected and up from 68% in the previous quarter. Total revenue will reach $90 billion in the fiscal year beginning in June, Oracle said, also handily beating analysts’ projections.

Oracle has shoveled tens of billions of dollars into a massive bet on artificial intelligence infrastructure, striking deals with customers including ChatGPT creator OpenAI and Meta Platforms Inc. While the company was once best known for its namesake database software, it has found success in providing the type of chips-filled data centers and other equipment necessary for training and deploying AI models.

The shares traded as high as $171.76 Wednesday in New York, their biggest intraday gain in six months.

The company’s big spending has also attracted the attention of investors who’ve grown increasingly concerned about an AI bubble. Even including Wednesday’s gains, its stock is still down almost 50% from a September peak on concerns about the costs associated with a big buildout. The company’s cash flow is expected to be negative for the next few years, and it’s slashing expenses where it can. On Tuesday, it announced that some cloud customers are going to pay for their own chips.

Oracle’s capital expenditures were about $18.6 billion in the fiscal third quarter, higher than the $14 billion anticipated by analysts. But the company maintained its outlook for $50 billion in capital costs in the current fiscal year, which “could address concerns about overspending that have plagued Oracle and other cloud infrastructure providers,” wrote Anurag Rana, an analyst at Bloomberg Intelligence.

Read More: Oracle Pulls Every Lever in AI Cash Crunch: Tech In Depth

Oracle is quickly delivering cloud capacity to customers, with 90% in the quarter provided on or ahead of schedule, co-Chief Executive Officer Clay Magouyrk said on a conference call after the results were announced. Remaining performance obligation, a measure of bookings, was $553 billion, compared with the $523 billion reported in the prior quarter. Most of this increase came from large-scale AI contracts in which the customers will fund the upfront purchases of semiconductors, the company said in the statement.

“The demand for cloud computing for AI training and inferencing continues to grow faster than supply,” the company said. “Furthermore, some of the largest consumers of AI Cloud capacity have recently strengthened their financial positions quite substantially. These market dynamics enable Oracle to comfortably meet and likely exceed our revenue growth rate forecast for FY27 and beyond.” Oracle said that due to advancements in AI-assisted coding, the company has been restructuring product development teams to make them smaller. “This new AI Code Generation technology is enabling us to build more software in less time with fewer people,” the company said. Last week, Bloomberg reported that Oracle was planning thousands of job cuts across the company to help trim costs. It has disclosed $1.6 billion in expected restructuring costs in the fiscal year through May, its largest such plan on record.

In the quarter, total revenue increased 22% to $17.2 billion. Earnings, excluding some items, were $1.79 per share. Analysts, on average, estimated profit of $1.70 a share on sales of $16.9 billion, according to data compiled by Bloomberg.

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