Oracle Just Added $30 Billion in AI Contracts. Nvidia Investors Should Read the Fine Print

On September 10, Oracle reported booking over $30 billion in new AI cloud contracts during its fiscal first quarter. This resulted in remaining performance obligations rising to $664 billion, a 30% increase year-over-year. Revenue reached $19.3 billion, surpassing expectations, and adjusted earnings per share were $1.92. However, Oracle reported a negative free cash flow of $5.4 billion, which was still better than the expected $9.56 billion.

Despite the capital expenditures totaling $28.5 billion, Oracle received $11.36 billion in customer prepayments, which helped alleviate the pressure. Most of the new AI contracts are structured with prepayments and bring-your-own-hardware arrangements, meaning they won't require significant additional capital spending. Oracle's management believes they can convert the backlog into cloud revenue without Oracle itself financing every GPU and data-center component.

Investors should pay attention to these financing structures rather than just the headline figures. Nvidia also benefited from this trend, as Oracle's backlog confirms the demand for accelerated compute, and enterprises and AI labs using Oracle's services typically employ Nvidia's GPUs. However, the disclosure raises questions about whether every dollar of OCI backlog translates to equivalent Nvidia spending.

Both stocks have seen increased institutional ownership, with Oracle's hedge fund holdings rising from 115 to 119 and Nvidia's from 275 to 285. Short interest remains relatively low for both companies, with Oracle at 2.8% and Nvidia at 1.2%. Oracle is increasingly seen as an AI infrastructure growth company, while Nvidia already discounts years of dominant accelerator economics.

The main risk for Oracle is converting contracted demand into acceptable returns on invested capital, while Nvidia's challenge lies in defending its margins and ecosystem. For investors, Nvidia remains a purer AI infrastructure exposure, but Oracle's customer-funded contract structures offer a more attractive risk-reward profile.