Oracle tops estimates as AI demand tempers cash-burn fears

Oracle topped Wall Street estimates for quarterly results ​on Thursday and reported a smaller cash burn than ​expected, offering investors confidence that its AI investments were generating returns without squeezing its balance sheet.

Shares of the company, which have slumped more than 21% this year, rose 4% in extended trading after Oracle reported a jump in revenue backlog, a key metric on future revenue growth prospects.

Oracle is benefiting from strong demand for its cloud computing services from surging enterprise spending on AI. Its efforts to expand ‌its data center ⁠footprint are ⁠helping the company secure more enterprise contracts.


BACKLOG SURGE SIGNALS STRONG AI DEMAND

In the first fiscal quarter, Oracle booked more than $30 billion of additional AI cloud contracts, boosting its ​revenue backlog to $664 billion. That topped analysts' estimate of $639.89 billion, according to data from Visible Alpha.

But more importantly, Oracle said that most of the newly ​contracted revenue will not require large cash outlays for chips, helping it maintain its annual spending target of $90 billion to $95 billion.

"The vast majority of those orders were via prepay or bring-your-own-hardware or a similar mechanic, so they don't require incremental capital from Oracle," the ​company's finance chief, Hilary Maxson, said in a media briefing.

"And we started to see a ⁠strong conversion ‌of our (backlog) into revenues this quarter, driving our cloud infrastructure results."

The company expects around half of its current ​backlog to convert ​into sales within the next 36 months.

"The AI ROI story just got real for Oracle and its ⁠customers. Strong results mean Oracle's customers are voting with their wallets, and Oracle needs ​to continue to push the narrative that backlog growth isn't just an OpenAI story anymore," ​said Rebecca Wettemann, CEO of Valoir, a technology research and advisory firm.

IMPROVING BALANCE SHEET QUELLS CAPITAL SPENDING FEARS

Oracle's stock has taken a beating this year on growing investor concerns over soaring capital expenditure that has pressured its free cash flow. In July, S&P Global downgraded Oracle's credit rating, citing weak cash flow and rising business risk.

Investors have also been worried about Oracle's Stargate project amid reported AI infrastructure buildout delays tied to labor, permitting approvals and power availability.

But Oracle burned less cash than analysts had expected, showing a negative free ‌cash flow of $5.40 billion versus expectations of negative free cash flow of $9.56 billion, according to data from LSEG.

While that cash burn is higher than in the previous quarter, it was well below negative free cash flow ​of $11.48 billion in ​the company's third quarter of fiscal 2026.

The ⁠company reported capital expenditure of $28.50 billion in the first quarter, but highlighted that about $11.36 billion of that spending was covered by prepayments from its customers.

"The new disclosure on customer prepayments is a very bullish signal ... And this is probably the first quarter in a ​while where the balance sheet actually improved, so that allows them to say there's no incremental impact on their capex plans," said Bill Birmingham, managing director at REX Financial.

Oracle's first-quarter revenue rose 30% to $19.3 billion, beating estimates of $19.14 billion. Adjusted earnings of $1.92 per share topped expectations of $1.74.

The company raised its fiscal 2027 adjusted earnings forecast to $8.10 per share from $8.05. Analysts on average expected annual profit of $8.07 per share. It forecast annual revenue of at least $90 billion.