Discount Hyperscaler: Oracle’s Direct Threat to AWS

Oracle's cloud revenue skyrocketed by 93% in the most recent quarter, with a staggering $638 billion backlog. This puts Oracle in a direct competition with Amazon Web Services (AWS), which reported $42 billion in revenue at a 39% operating margin. Oracle stands out by allowing customers to prepay and bring their own GPUs, which gives it an edge over AWS's price structure. However, Oracle's aggressive growth comes with a risk, as the company recently raised $40 billion in debt.

Despite these challenges, Oracle and AWS both delivered impressive quarterly results. Oracle's cloud infrastructure revenue grew by 93% year over year to $5.79 billion, while AWS's AWS revenue surged by 37% to $42.23 billion. Both companies saw strong growth in their AI and chip businesses, with AWS's backlog reaching $496 billion. Oracle's multicloud database revenue jumped 404% in Q4 as it integrated its operations layer with AWS, Google, and Microsoft regions.

Oracle's approach focuses on prepayment and GPU bring-your-own deals, while AWS relies on its embedded multicloud database solutions and partnerships with major AI players like Anthropic and OpenAI. As Oracle's cloud revenue guidance calls for a 58% to 64% growth in Q1 FY27, analysts will be watching to see if AWS can maintain its 39% operating margin against Oracle's pricing pressure.

Amazon's Q3 operating income is estimated between $22.5 billion and $26.5 billion, setting the stage for a crucial test of its AWS cash engine.