Oracle spent roughly half of fiscal 2026's entire capital budget in one quarter
Cloud infrastructure revenue more than doubled to $7.4bn and the contracted backlog reached $664bn, while the $28.5bn Oracle put into capacity in three months turned a record $23.1bn of operating cash flow into free cash flow of negative $5.4bn.
The Investor · Invest desk
What happened
- Oracle's fiscal first-quarter revenue rose almost 30% to $19.35bn against LSEG consensus of $19.14bn, and adjusted earnings of $1.92 a share beat the $1.74 analysts expected.
- Cloud infrastructure revenue more than doubled to $7.4bn, cloud application revenue grew 10%, and the legacy software segment fell 3% to $5.55bn, below the StreetAccount estimate.
- Remaining performance obligations reached $664bn, $209bn above a year earlier and ahead of a $630.6bn consensus, and Oracle booked more than $30bn of new AI cloud contracts in the quarter.
- Capital spending jumped to $28.5bn from $8.5bn a year earlier, as Oracle brought 850 megawatts of data center capacity online and delivered more than 300,000 GPUs to AI cloud customers.
- The shares rose 7% in extended trading on Thursday and were up 6.2% in Friday premarket, leaving them down 22% for the year against a roughly 11% gain for the S&P 500.
Why it matters
- What it limits constraint Oracle has a weaker cash position and a lower credit rating than its hyperscaler rivals, so serving a $664bn book while free cash flow is negative keeps the buildout dependent on lenders and equity buyers now that the $20bn at-the-market program is finished.
- What doesn't add up contradiction Deutsche Bank tells clients the new AI contracts need no further investment from Oracle; Bank of America tells them it cannot see the profitability or the return on the capital already committed. Both kept Buy ratings, $60 apart.
- Who's exposed exposure Incremental growth now tracks the compute budgets of the five AI buyers behind the contracted demand, a narrower and more correlated counterparty set than the database customer base that funded the previous decade.
- Who has to decide decision Anyone underwriting Oracle at Citi's $330, about 30 times fiscal 2028 earnings, is buying the backlog's conversion into cash; JPMorgan reads the same filings and stops at $200.
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The 121% growth on $7.4bn of cloud infrastructure revenue implies a base near $3.35bn a year earlier, an increase of about $4.05bn [11][34]. Total revenue grew by about $4.47bn [1][35]. One product line therefore produced roughly 91% of the year-over-year gain, and the legacy software segment took about $170m back out [36][37].
Capital spending ran about 1.47 times the revenue booked in the same three months [30]. Record operating cash flow of $23.1bn, up 184%, less that spending, is the negative $5.4bn of free cash flow, against negative $362m a year earlier [8][7][29]. The $28.5bn is about 51% of the $55.7bn Oracle spent across all of fiscal 2026 [17][31].
Against a fiscal 2027 target of at least $90bn in revenue, the $664bn of obligations is roughly 7.4 years of sales at the guided run rate [18][39]. The sequential rise in backlog was $26bn, which Cryptopolitan reported eased some concern about the spending [5]. Add the quarter's recognised revenue and gross additions were near $45bn, of which the AI cloud contracts were more than two thirds [38].
Deutsche Bank kept Buy with a $300 target and said the new AI contracts are pre-paid and bring-your-own-hardware deals that will not require additional investment from Oracle, and noted the company completed its $20bn at-the-market equity program [20]. Bank of America kept Buy at $240 while citing limited visibility into Oracle's profitability and return on capital investment [21]. Oracle's statement said the new AI contracts will not affect its plans to raise capital [14].
"Nothing that we know today would lead us to believe that New Mexico or any of our other sites are delayed relative to the schedules that we included, for example, in our fiscal '27 outlook," Hilary Maxson, Oracle's finance chief, said in a briefing with reporters [28].
The contracted cloud demand behind the buildout comes from customers including Nvidia, Meta, OpenAI, AMD and xAI, CNBC reported [33]. Those are companies whose product is models, buying compute. Oracle did not break out how much of the $664bn belongs to them.
The sell side is pricing the same filings between JPMorgan's December 2027 target of $200 and Citi's $330, where the high sits 65% above the low [24][22][32]. Citi's number is based on roughly 30 times fiscal 2028 earnings; Bernstein stayed at Outperform with $325 but cut the earnings multiple in its model to 23.5 times from 24.5 after software valuations fell [22][23]. The shares are down 22% this year while the S&P 500 has gained roughly 11% [13].
In my view the backlog is a funding commitment before it is a revenue one, because the capacity gets built with borrowed money unless the pre-paid, customer-hardware structure Deutsche Bank describes covers most of the bill [3][20]. The counter-case is the one Deutsche Bank makes directly: contracted work can arrive without a matching cash outflow, and then the free cash flow line turns without Oracle slowing anything down [20]. Maxson said full-year capital spending guidance is unchanged [26]. If second-quarter capex steps down while backlog keeps growing, that reading holds; if it stays near $28.5bn a quarter, the $125bn of debt funds the gap [15][16].
What to watch
- Second-quarter capital spending against the unchanged full-year guidance Maxson cited: whether $28.5bn a quarter repeats or steps down.
- Investor Day and AI World, which Citi named as the setup for upward revisions to its estimates.
- Whether backlog additions hold near the $26bn sequential pace once this quarter's AI contracts are in the base.
Information, not investment advice. This story is general information about companies and markets, drawn from cited reporting. It is not a recommendation to buy, sell or hold any security; check the cited sources before acting.
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- [1]
Oracle's fiscal first-quarter revenue grew almost 30% year over year to $19.35bn, beating LSEG consensus of $19.14bn; the quarter ended Aug. 31.
- [2]
Adjusted earnings per share were $1.92 against LSEG consensus of $1.74.
- [3]
At the end of the quarter Oracle's remaining performance obligations stood at $664bn, above StreetAccount's $630.6bn consensus; the sum includes contracted but unrecognised revenue, deferred revenue and uncollected invoices.
- [4]
Remaining performance obligations of $664bn were a $209bn increase from the same period a year ago.
- [5]
A $26bn increase in backlog eased some concern around the amount of money Oracle is spending on AI infrastructure.
- [6]
Oracle booked over $30bn in further AI cloud contracts during the quarter.
- [7]
Negative free cash flow came in at $5.4bn, compared with negative $362m a year earlier.
- [8]
Operating cash flow reached a record $23.1bn, up 184%.
- [9]
Oracle delivered an additional 850 megawatts of data center capacity in the quarter.
- [10]
Oracle delivered more than 300,000 GPUs to its AI cloud customers during the period.
- [11]
Revenue from cloud infrastructure more than doubled, rising 121% to $7.4bn, beating the $7.09bn consensus estimate.
- [12]
Oracle shares jumped 7% in extended trading on Thursday and were last up 6.2% in Friday premarket trading.
- [13]
Oracle shares have dropped 22% this year as of Thursday's close, while the S&P 500 has gained roughly 11%.
- [14]
New AI contracts will not have any impact on Oracle's plans to raise capital, according to the company's statement.
- [15]
Capital expenditures soared to $28.50bn from $8.50bn a year earlier.
- [16]
Oracle's total debt now stands at $125bn.
- [17]
Oracle's capital expenditures for fiscal 2026 totalled $55.7bn, leaving it with a cash outflow $23.7bn greater than it generated.
- [18]
For fiscal 2027 Oracle sees $8.10 in adjusted earnings per share on at least $90bn in revenue; LSEG consensus called for $8.07 and $89.76bn.
- [19]
Oracle has a weaker cash position than hyperscaler competitors and a lower credit rating.
- [20]
Deutsche Bank maintained its Buy rating and $300 price target, said the new AI contracts were pre-paid and bring-your-own-hardware deals that apparently will not require any additional investment from Oracle, and noted the company completed its $20bn at-the-market equity program.
- [21]
Bank of America maintained Buy with a $240 price target and noted limited visibility into Oracle's profitability and return on capital investment despite the growth in OCI revenues.
- [22]
Citi kept Buy with a $330 target and a Positive Catalyst Watch, said it sees a favorable setup for upward revisions at Investor Day and AI World, and based its target on roughly 30 times fiscal 2028 earnings.
- [23]
Bernstein maintained Outperform and a $325 target, rolling estimates forward but cutting the earnings multiple in its model to 23.5 times from 24.5 times after software valuations moved lower.
- [24]
JPMorgan maintained Overweight and set a December 2027 price target of $200.
- [25]
Cloud application revenue grew 10%.
- [26]
Guidance on capital spending for the full year is unchanged, Maxson said in the briefing.
- [27]
Oracle's software category contributed $5.55bn in revenue, down 3% and below StreetAccount's $5.61bn consensus.
- [28]
"Nothing that we know today would lead us to believe that New Mexico or any of our other sites are delayed relative to the schedules that we included, for example, in our fiscal '27 outlook," Hilary Maxson, Oracle's finance chief, said in a briefing with reporters.
- [29]
Record operating cash flow of $23.1bn less $28.5bn of capital spending reconciles to the reported negative free cash flow of $5.4bn.
- [30]
Quarterly capital spending of $28.5bn was about 1.47 times the $19.35bn of revenue booked in the same quarter.
- [31]
The quarter's $28.5bn of capex is about 51% of the $55.7bn Oracle spent in all of fiscal 2026.
- [32]
Citi's $330 target sits 65% above JPMorgan's $200 target.
- [33]
Oracle's investment is expected to expand capacity for contracted cloud demand from customers including Nvidia, Meta, OpenAI, AMD and xAI.
- [34]
Cloud infrastructure revenue of $7.4bn at 121% growth implies a year-ago base of about $3.35bn and a year-over-year increase of about $4.05bn.
- [35]
Total revenue of $19.35bn at about 30% growth implies a year-ago base near $14.9bn and an increase of about $4.47bn.
- [36]
Cloud infrastructure accounted for roughly 91% of Oracle's year-over-year revenue growth in the quarter.
- [37]
The software segment at $5.55bn after a 3% decline implies a year-ago $5.72bn, so it subtracted about $170m of revenue year over year.
- [38]
A $26bn net rise in backlog plus $19.35bn of revenue recognised implies gross additions near $45bn, so the more than $30bn of new AI cloud contracts was more than two thirds of gross bookings; this assumes essentially all quarterly revenue was recognised out of remaining performance obligations.
- [39]
Remaining performance obligations of $664bn equal about 7.4 years of revenue at the fiscal 2027 guidance of at least $90bn.
Sources
7 independent publishers whose own reporting we read for this story.
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