Oracle Cloud Sales More Than Double, Topping Estimates On AI

Sales in the closely watched cloud infrastructure business jumped 121% to $7.4 billion, the company said Thursday in a statement. Analysts, on average, expected the division to post $7.19 billion in sales, according to data compiled by Bloomberg.

The company also said it completed a plan to sell $20 billion of equity from time to time at market value. Ahead of Thursday's earnings, several analysts had raised questions about the timing of the at-the-market equity sale.

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Oracle, long known for its database software, has refashioned itself as a provider of computing power for artificial intelligence work and is embarking on a major build-out of data centers for OpenAI and other customers. Wall Street is watching the scale of spending on these ambitious projects and how quickly Oracle can complete them. The company said it added 850 megawatts of data center capacity in the quarter.

The shares gained about 5% in extended trading after closing at $152.94 in New York. The stock had dropped 38% since its June 1 high for the year on concerns over financing needs, rising component costs and news reports on data center construction challenges, wrote Derrick Wood, an analyst at TD Cowen, ahead of the results.

"We are delivering data center and GPU capacity at a pace that would have seemed impossible only a year ago," co-Chief Executive Officer Clay Magouyrk said during a call with analysts after the results were released. Magouyrk was referring to graphics processing units, the key chips in AI servers. He said that OpenAI trained its latest model, Astra, at Oracle's flagship data center in Abilene, Texas, where 75% of planned capacity has been delivered to the customer.

Oracle reported $28.5 billion in capital expenditures, mostly on data center equipment, in the three months ended Aug. 31. In a briefing with reporters, Chief Financial Officer Hilary Maxson affirmed the company's $70 billion forecast for that spending in the year ending May 2027, with an additional $20 billion to $25 billion due to prepayments for some components.

While capital spending was steeper than expected, the company managed other expenses well and free cash flow was not as negative as feared, Raimo Lenschow, an analyst at Barclays, wrote in a note.

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The company said it booked more than $30 billion of additional AI cloud contracts during the quarter, raising its remaining performance obligations, a measure of future revenue, to $664 billion. Analysts, on average, estimated $641.8 billion.

Fiscal first-quarter sales gained 30% to $19.3 billion. Profit, excluding some items, was $1.92 per share. Analysts, on average estimated $1.75 a share, according to data compiled by Bloomberg.

Sales of cloud applications increased 10% to $4.22 billion. Software revenue declined 3% to $5.55 billion, which Oracle said reflected the "continuing migration" of customers from on-premises products to those on the cloud.