Oracle (ORCL.US) AI bet pays off! Q1 results exceed expectations, cloud infrastructure business revenue surges 121%, RPO soars to $664 billion

According to Zhitong Finance APP, cloud computing giant Oracle (ORCL.US) has released better-than-expected results for the first quarter of fiscal year 2027, with the highly watched cloud business growth surpassing analysts' expectations, and has raised some of its performance guidance, indicating that the company's investments in large artificial intelligence (AI) data center projects are starting to pay off. As of this writing, Oracle's shares rose nearly 4% in after-hours US trading on Thursday.

The financial report shows that Oracle's first-quarter revenue increased by 30% year-over-year to $19.35 billion, exceeding analysts' average expectation of $19.13 billion. The company attributed the revenue growth to the strong performance of its cloud infrastructure business and increased data center capacity. Operating profit was $6.73 billion, up 57% year-over-year; net profit attributable to common shareholders was $4.68 billion, up 60% year-over-year; adjusted earnings per share were $1.92, better than the analysts' average estimate of $1.75.

By business segment, cloud revenue rose 62% year-over-year to a record high of $11.61 billion, beating analysts' average expectation of $11.52 billion. Of this, cloud infrastructure revenue rose 121% year-over-year to $7.4 billion, surpassing the average forecast of $7.19 billion; cloud application revenue increased 10% year-over-year to $4.2 billion. Some analysts previously expected that as demand for AI computing power remains strong, the increasingly competitive pricing environment would benefit Oracle's cloud business.

Meanwhile, software revenue decreased 3% year-over-year to $5.55 billion, missing the analysts' average expectation of $5.67 billion; hardware revenue grew 15% year-over-year to $770 million, beating the analysts' forecast of $670 million; service revenue rose 5% year-over-year to $1.41 billion, better than the analysts' forecast of $1.38 billion. Regarding the drop in software revenue, Oracle said this reflects ongoing customer migration from on-premise products to cloud-based products.

Oracle has long been known for its database software but has now repositioned itself as a provider of computing power for AI operations, building data centers at scale for OpenAI and other clients. Wall Street is closely monitoring the size of the capital expenditures for these ambitious projects and how quickly Oracle can complete them. The company stated that it added 850 MW of data center capacity this quarter.

Customer demand for AI cloud training and inference services continues to rise, growing faster than supply. In the first quarter, Oracle added over $30 billion in new AI cloud contracts, pushing its remaining performance obligations (RPO) up 4% quarter-over-quarter to $664 billion, higher than analysts' average estimate of $618 billion. According to the structure of these new contracts, the company confirmed they would not have an additional impact on its financing plans. Since the end of fiscal Q4 2026, Oracle has also delivered over 300,000 GPUs to its AI cloud customers—almost three times the capacity delivered in Q4 2026.

Oracle co-CEO Clay Magouyrk said on the earnings call with analysts: “We are delivering data center and GPU capacity at a speed that just a year ago would have seemed impossible.”

Another co-CEO, Mike Sicilia, also highly praised the company's AI progress. He stated: “By combining applied AI with decades of accumulated complex business rules, regulatory compliance systems, security models, data models, and customer configurations, we are able to continuously deliver AI value to our clients.”

First-quarter operating cash flow reached $23.1 billion, up 184% year-over-year; first-quarter free cash flow was negative $5.4 billion. The company has not yet provided a specific timeline for a return to positive free cash flow. However, Oracle CFO Hilary Maxson said: “What I would like to emphasize is that every project we are advancing by its nature is expected to be a strong free cash flow generator.” By this logic, Hilary Maxson expects that Oracle’s current projects will “generate positive free cash flow very soon” once they begin to scale up.

Oracle stated that capital expenditures for the three months ending August 31 were $28.5 billion, most of which went to data center equipment. This figure is much higher than analysts' estimate of $19.23 billion. Hilary Maxson confirmed that the company expects capital expenditures for the fiscal year ending May 2027 to reach $70 billion. In addition, due to some components requiring advance payments, an extra $20-25 billion in expenses will be incurred.

As Oracle finances the expansion of its AI business through borrowing, capital expenditure remains one of the biggest concerns for Oracle investors. Clay Magouyrk said during the earnings call that in addition to using its own capital, the company is constantly looking for “interesting ways to finance the business.”

He stated: “We have established numerous partnerships with different suppliers and manufacturers, and we have created new business models including ‘bring-your-own-hardware’—all of which can share this part of the capital expenditure in different ways.” He was referring to Oracle allowing its clients to place their own hardware in Oracle's data centers. He added that not all capital needs to be provided by Oracle, and this is not “a factor limiting our business growth.”

Barclays analyst Raimo Lenschow wrote in a report that although capital expenditures were higher than expected, the company's cost control for other expenses was good, and the negative free cash flow was not as severe as the market feared.

Looking ahead, for the second quarter, Oracle expects revenue to increase by 30% to 34% year-over-year, with the mid-point of the forecast slightly better than analysts' average expectation of 31.9%; the company also expects adjusted earnings per share of $1.85 to $1.93, with the mid-point in line with the analysts' average estimate of $1.89. For fiscal year 2027, Oracle expects revenue to “reach at least $90 billion,” compared with the previous expectation of $90 billion; and it has raised its adjusted EPS forecast from $8.05 to $8.10.