Oracle shares rally: Can strong AI demand sustain Oracle’s stock surge?

Oracle shares jumped in after-hours trading after the software giant reported stronger-than-expected fiscal first-quarter results, with booming AI demand driving rapid growth in its cloud infrastructure business. The results helped ease some investor concerns over Oracle’s heavy spending on AI infrastructure and data centres. (Source: TradingView, Yahoo Finance, Reuters)

Oracle reported $19.35 billion in quarterly revenue, up about 30% year on year, beating Wall Street expectations of $19.14 billion. Adjusted earnings came in at $1.92 per share, above analysts’ estimate of $1.74. The company also raised its fiscal 2027 adjusted EPS forecast to $8.10, from $8.05 previously.

Oracle’s cloud infrastructure revenue jumped 121% year over year to $7.4 billion in the August quarter. That marked a sharp acceleration from 93% growth in the previous quarter and 84% in the February quarter. The surge highlights the growing importance of Oracle Cloud Infrastructure as the company competes with larger cloud providers such as AWS, Microsoft Azure and Google Cloud.

Oracle booked more than $30 billion in new AI cloud contracts during the quarter. Its remaining performance obligations, a measure of contracted revenue yet to be recognised, surged to a record $664 billion, exceeding analysts’ estimate of about $640 billion. Oracle said much of the new contracted business would not require significant additional capital expenditure because of customer prepayments and arrangements such as bring-your-own-hardware.

Oracle is increasingly positioning itself as a serious challenger to the established cloud leaders. The company’s latest 121% growth in cloud infrastructure revenue significantly outpaced the growth rates typically associated with AWS and Azure. The rapid expansion is being driven by customers seeking computing capacity for AI training and inference, helping Oracle gain ground in a market historically dominated by Amazon, Microsoft and Google.

Oracle’s strong growth comes with a major cost. The company spent around $28.5 billion on capital expenditure during the quarter, while fiscal 2027 capital spending is expected to remain around $90 billion-$95 billion. Free cash flow was negative $5.4 billion, although that was substantially better than analysts had expected. Customer prepayments helped offset about $11.36 billion of quarterly capital spending.

Oracle’s latest results strengthened the argument that its massive AI infrastructure investments are beginning to translate into revenue growth. The company expects at least $90 billion in fiscal 2027 revenue and forecasts 30%-34% revenue growth for the November quarter. The key question for investors now is whether Oracle can sustain its exceptional cloud growth while controlling the huge capital requirements needed to compete in AI infrastructure.