Oracle's AI Cloud has skyrocketed by 121%, with 664 billion US dollars of orders in hand, but its cash flow has turned negative.

Oracle's AI cloud business is still accelerating, while capital expenditure continues to rise.

On September 10 local time in the United States, Oracle released its financial results for the first quarter of fiscal 2027 (covering the period from June 2026 to August 2026). The earnings report shows that Oracle's revenue in the first quarter reached 19.35 billion US dollars, a year-on-year increase of 30%, hitting a new all-time high for a single quarter and exceeding the average analyst expectation of 19.14 billion US dollars; net profit stood at 4.68 billion US dollars, up roughly 60% year on year; adjusted earnings per share was 1.92 US dollars, up 30% year on year and higher than the market expectation of 1.74 US dollars.

In the first fiscal quarter, Oracle's cloud business revenue reached 11.6 billion US dollars, up 62% year on year, of which cloud infrastructure (IaaS) revenue was 7.4 billion US dollars, up 121% year on year.

After the earnings report was released, Oracle's after-hours stock price once rose by more than 10%.

But another set of figures is also noteworthy. Oracle's capital expenditure for the quarter reached 28.5 billion US dollars, compared with only 8.5 billion US dollars in the same period last year, and free cash flow was negative 5.4 billion US dollars. At the same time, the company's remaining performance obligations, that is, orders that have been signed but not yet recognized as revenue, continued to rise to 664 billion US dollars.

Oracle also completed the sale of 20 billion US dollars of common stock through its ATM stock issuance program to replenish funds for data center expansion.

Judging from the results, this investment has begun to generate returns. The question is, as AI infrastructure is still in the stage of large-scale expansion, how much more capital Oracle needs to continue to invest, and how quickly these investments can eventually be converted into revenue and cash flow.

01 Cloud business drives growth, IaaS growth rate keeps accelerating for consecutive quarters

Cloud computing business has become Oracle's most important source of growth at present. Its growth rate is also accelerating significantly, especially for IaaS.

This growth rate has accelerated for three consecutive quarters. In the third quarter of fiscal 2026, the IaaS growth rate was 84%, rose to 93% in the fourth quarter, and further increased to 121% in the first quarter of fiscal 2027. At the same time, quarterly revenue of 7.4 billion US dollars is also higher than the previous market expectation of about 7.19 billion US dollars.

The performance of cloud application business (SaaS) is relatively stable, with revenue of 4.2 billion US dollars, up 10% year on year. The traditional software business continued to face pressure, with revenue of 5.5 billion US dollars, down 3% year on year. Oracle explained that customers are still continuously migrating from on-premise software to the cloud. Service business revenue was 1.4 billion US dollars, up 5% year on year; hardware business revenue was 800 million US dollars, up 15% year on year.

The supply side is also expanding rapidly. In the first fiscal quarter, Oracle added 850 megawatts of data center capacity and delivered more than 300,000 GPUs to AI cloud customers, with delivery capacity nearly three times that of the previous quarter. The company also stated that customer demand for AI cloud training and inference services is still growing faster than supply.

In other words, demand is strong, cloud infrastructure is growing rapidly, and the company is continuously increasing supply.

At the application level, Oracle has also launched a new AI data platform that can automatically generate Enterprise Ontology, helping enterprises use AI models to process their own private data. At the same time, the company has launched a new AI medical management and electronic medical record system, which consists of AI agents for different medical specialties.

Oracle is continuously extending its AI business from computing power infrastructure to enterprise software and data management.

02 RPO rises to 664 billion US dollars, order growth is more eye-catching than revenue

Cloud revenue of 11.6 billion US dollars represents the growth Oracle has achieved now, while the remaining performance obligations (RPO) of 664 billion US dollars represent orders that have been signed in the next few years.

In the first fiscal quarter, Oracle added more than 30 billion US dollars of new AI cloud contracts, RPO rose to 664 billion US dollars, an increase of 209 billion US dollars year on year, continuing to grow from 638 billion US dollars in the previous quarter. This figure is also higher than market expectations. Analysts previously expected Oracle's RPO to be about 630.6 billion US dollars, and the actual figure is more than 30 billion US dollars higher. Oracle specifically emphasized that the structure of newly signed AI contracts will not add additional pressure to the company's existing financing plan.

This batch of orders has attracted high market attention because Oracle has previously rapidly expanded its RPO through large-scale AI infrastructure contracts. About half of the 638 billion US dollars RPO in the previous quarter was related to single customer OpenAI. Therefore, the larger the RPO, the stronger the support for Oracle's future revenue growth, but the market will also pay attention to customer concentration and order fulfillment speed.

For a company that is aggressively expanding data centers, signing a contract is only the first step. Data centers, GPUs and network infrastructure need to be completed first, before stable cloud service revenue can be generated. How much of the RPO can eventually be converted into revenue as planned will become an important indicator for the market to observe the growth quality of Oracle in the next stage.

03 Capital expenditure of 28.5 billion US dollars, cash flow pressure continues to rise

The biggest pressure on Oracle this quarter still comes from cash flow.

Capital expenditure in the first fiscal quarter reached 28.5 billion US dollars, up more than twice year on year. At the same time, Oracle's operating cash flow reached 23.1 billion US dollars, up 184% year on year, setting a record for the first quarter. However, operating cash flow still cannot cover such huge capital expenditure, and free cash flow eventually stood at negative 5.4 billion US dollars, compared with negative 362 million US dollars in the same period last year.

This is also the most noteworthy contradiction for Oracle at present: the cloud business is growing faster and faster, but in order to maintain this growth, the company needs to invest more funds in advance to build data centers.

To support its capital investment plan, Oracle completed the sale of 20 billion US dollars of common stock through the ATM stock issuance program in the first quarter, with net proceeds of about 19.909 billion US dollars after deducting issuance costs. As of August 31, the company's cash and cash equivalents amounted to about 36.4 billion US dollars.

In other words, the financing action of the first fiscal quarter has been implemented. The financing problem that Oracle was previously worried about has been temporarily alleviated, but share issuance itself will increase the number of shares, and the shareholding ratio of existing shareholders will be diluted.

Interest costs have also begun to rise. Official documents show that Oracle's interest costs in the first fiscal quarter increased by 55% year on year to about 1.4 billion US dollars. The company currently has a debt scale of about 125 billion US dollars, and cash flow pressure has become an unavoidable issue when the market evaluates its AI expansion model.

Before the earnings report was released, Oracle's stock price had fallen by about 22% year to date, significantly lagging behind the S&P 500 index in the same period. The market previously had many concerns about its financing needs, data center construction and cash flow status.

Therefore, the significance of this earnings report to Oracle is not just "revenue exceeding expectations". What the market really needs to see is whether huge capital investment can continuously bring high-speed growth, and eventually make cash flow return to positive numbers.

02 Q2 growth remains strong, the real test has just begun

The guidance Oracle gave for the second fiscal quarter is still strong. The company expects revenue to grow by 30% to 34% year on year, cloud business revenue to grow by 65% to 71%, and adjusted earnings per share is expected to be 1.85 to 1.93 US dollars.

The market previously expected Oracle's adjusted earnings per share in the second fiscal quarter to be about 1.89 US dollars, and revenue to be about 21.2 billion US dollars, corresponding to a growth of about 32%. Therefore, judging from the guidance, the outlook given by Oracle is not significantly lower than market expectations.

It should be noted that the second quarter of fiscal 2026 included one-off investment income from the sale of Oracle's stake in Ampere. Excluding this factor, Oracle expects adjusted earnings per share in the second quarter of fiscal 2027 to grow by 21% to 25% year on year. If this one-off income is included in the comparison caliber, earnings per share will instead decline.

At the same time, the full-year target has also been raised. Oracle currently expects revenue for fiscal 2027 to reach at least 90 billion US dollars, and adjusted earnings per share to reach 8.10 US dollars. Previous market expectations were 89.76 billion US dollars and 8.07 US dollars respectively.

This makes the market begin to pay attention to another account: how much capital cost Oracle is using in exchange for this round of AI cloud growth.

Oracle's total liabilities have reached 125 billion US dollars, free cash flow has been negative for five consecutive quarters, and its credit rating has been downgraded to BBB-. At the same time, Oracle is still building large-scale AI data centers, and plans to cut 7,000 to 10,000 employees before the start of the second quarter to ease the financial pressure brought by expansion.

Hilary Maxson, Chief Financial Officer, said on the conference call that the information currently available to the company shows that there is no risk of delay in the construction progress of data centers in New Mexico and other regions. Behind this statement, it actually corresponds to Oracle's most critical operating variable in the next stage: infrastructure must continue to go online to support the huge contracts that have been signed.

Oracle currently has an order backlog of 664 billion US dollars, but the order size itself cannot be directly converted into current-period revenue. The company needs to continuously invest in data centers, GPUs and related infrastructure to gradually fulfill these contracts. For this reason, the market's judgment on Oracle has begun to diverge significantly.

Bulls focus on supply expansion. Mizuho Securities is optimistic about the launch of about 1 GW of new infrastructure capacity of Oracle, maintains an outperform rating with a target price of 320 US dollars; Morgan Stanley raised its target price to 210 US dollars, Bank of America maintains a buy rating with a target price of 240 US dollars. Guggenheim Securities even gave a target price of 400 US dollars.

The cautious ones focus on the balance sheet. Jefferies downgraded its target price from 320 US dollars to 290 US dollars, and CLSA gave a target price of 145 US dollars, with the core concern being the rising debt level. Paul Meeks of Freedom Capital Markets also pointed out that Oracle has recorded negative free cash flow for five consecutive quarters.

Uncertainty at the regulatory level is also increasing. EU antitrust regulators are collecting information from Oracle's customers and competitors to investigate whether its cloud software terms unfairly lock customers into Oracle's cloud infrastructure. It is still in the preliminary investigation stage and has not constituted a formal case.

This expansion of AI cloud is pushing Oracle to a more direct test: how long high growth can last depends on how much real return the high investment can eventually bring.

Special contributor Jin Lu also contributed to this article

This article is from "Tencent Technology", author: Joanne, editor: Xu Qingyang, published with authorization from 36Kr.