Oracle tops estimates as AI demand tempers cash-burn fears

Oracle exceeded Wall Street expectations for its quarterly results on Thursday, reporting a smaller cash burn than anticipated. The company's AI investments have been yielding returns without straining its financials. Shares of Oracle, which had declined over 21% this year, surged 4% in extended trading after the announcement. Revenue backlog increased significantly, driven by strong demand for the company's cloud computing services in the burgeoning AI market.

Oracle booked over $30 billion in additional AI cloud contracts in the first fiscal quarter, raising its revenue backlog to $664 billion, surpassing analysts' estimate of $639.89 billion. Most of these newly contracted revenues will not require substantial cash outlays for chips, thanks to prepay or bring-your-own-hardware arrangements.

Oracle's finance chief, Hilary Maxson, noted that the company is seeing a strong conversion of its backlog into revenue, which is bolstering its cloud infrastructure results. The company expects around half of its current backlog to convert into sales within the next 36 months. This positive outlook alleviates concerns about Oracle's capital spending, which had raised investor fears due to soaring expenditure.

Oracle's cash flow improved, with a negative free cash flow of $5.40 billion in the first quarter, lower than the expected $9.56 billion. Despite delays in Oracle's Stargate project due to labor, permitting approvals, and power availability issues, the improved balance sheet demonstrates that the capex plans are not being adversely impacted.

Oracle reported a 30% increase in first-quarter revenue to $19.3 billion, exceeding expectations, and adjusted earnings of $1.92 per share, surpassing forecasts. The company has raised its fiscal 2027 earnings forecast to $8.10 per share and predicts annual revenue of at least $90 billion.