Oracle's stock rises as AI demand spurs an earnings milestone not seen in 15 years
By Christine Ji
For the first time in over a decade and a half, Oracle says it grew both revenue and earnings by at least 20%
Oracle's stock was rising after Tuesday's earnings report.
Oracle proved the artificial-intelligence doubters wrong on Tuesday as the company beat expectations on revenue and earnings, while disclosing that it doesn't expect it will need to take on more financing to support its growing set of AI contracts.
Shares of Oracle (ORCL) were up more than 8% in Tuesday's extended session as investors gained confidence in the company's ability to turn its AI contracts into revenue. Revenue for the quarter was $17.2 billion, up 22% from a year before, or 18% after currency adjustments. Adjusted earnings were $1.79 per share, up 21% from a year before.
Wall Street analysts had been anticipating $16.9 billion and $1.70, respectively.
It's the first quarter in over 15 years to bring 20%-plus growth rates on revenue and adjusted earnings, Oracle said.
The company is seeing a "halo effect" from its AI infrastructure business, as training models on Oracle Cloud Infrastructure (OCI) "allows us to embed very high-quality services right into our applications," co-CEO Mike Sicilia said on the earnings call.
Remaining performance obligations, or the value of future contracts that have yet to be recognized as revenue, were $553 billion for the third quarter, missing consensus estimates of $556 billion by just a hair. Oracle said that it doesn't expect to raise incremental funds for many of these new AI contracts because customers are often paying up front for chips or supplying the hardware themselves.
Read: Oracle faces a high bar for earnings as investors look for an AI payoff
Cloud-services revenue was $8.9 billion, representing 52% of sales in the third quarter and growing 44% year over year.
This growth was fueled by OCI, which surged 84% to $4.9 billion in revenue. The company's multicloud database offering, which allows customers to run Oracle's database services directly within rival cloud platforms, grew 531% year over year.
The stock reaction marks a shift in sentiment toward Oracle. Heading into the report, shares of Oracle were down 23.4% on the year. Software stocks have broadly sold off and Oracle investors in particular have worried about the company's increasing debt load. In February, the company announced that it would raise up to $50 billion in debt and equity to fund its AI infrastructure buildout for the year.
Sicilia pushed back against the "SaaSpocalypse" narrative on the earnings call, saying that Oracle is rapidly adopting AI coding tools "not only to accelerate our SaaS business, but to deliver solutions that that enable entire ecosystems across numerous industries."
While basic AI hardware rentals net 30% to 40% margins, Oracle's broader ecosystem is becoming more lucrative, co-CEO Clay Magouyrk said on the call. For every dollar spent on AI, customers spend 10% to 20% more on high-margin services like storage and security. Meanwhile, the multicloud database business, which has higher margins of 60% to 80%, is lifting overall OCI profitability.
For the current quarter, Oracle guided for revenue growth between 19% to 21%, bracketing the 20% growth expectations implied by the FactSet consensus. Total cloud revenue is expected to grow between 46% and 50%.
Oracle kept intact its fiscal 2026 revenue guidance of $67 billion and capital-expenditure guidance of $50 billion. However, the company raised its fiscal 2027 revenue guidance to $90 billion, surpassing consensus estimates of $86.6 billion.
-Christine Ji
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