Oracle's shares climbed 6% in premarket trading Friday after the company reported fiscal first-quarter revenue that beat expectations and signaled robust demand for its AI cloud services. The results helped ease concerns about the company's debt-fueled expansion into artificial intelligence infrastructure.
The enterprise software giant posted revenue of $19.35 billion for the quarter, surpassing the $19.14 billion consensus estimate from LSEG. Net income jumped 60% year over year to $4.7 billion, reflecting strong operating leverage from its cloud business.
Investors have been watching Oracle closely as it pours billions into data centers and AI compute capacity. The latest figures suggest those investments are starting to pay off, with cloud revenue up 62% to $11.6 billion and cloud infrastructure revenue soaring 121%. The company also signed more than $30 billion in new AI cloud contracts during the quarter, lifting its remaining performance obligations (RPO) to a record $664 billion—above the $639.89 billion analysts had projected.
Management said the backlog is expected to convert into revenue over the next 36 months, providing strong visibility. The company's second-quarter revenue guidance calls for growth of 30% to 34%, with cloud revenue expected to rise 64% to 70%. For fiscal 2027, Oracle now sees revenue of at least $90 billion, up from its prior outlook, and raised its adjusted EPS forecast to $8.10 from $8.05.
Data center execution improves
Oracle's results come after months of scrutiny over its massive capital expenditures. In the August quarter, the company spent $28.5 billion on capital expenditures, well above the $19.23 billion analysts expected. However, Oracle also brought 850 megawatts of AI compute capacity online during the quarter—three times the amount delivered in the entire fourth quarter—which helped alleviate concerns about project delays.
J.P. Morgan analysts led by Samik Chatterjee said the results addressed several investor worries, including the sustainability of backlog growth and the pace of revenue conversion. KeyBanc analysts echoed that sentiment, noting that the capacity ramp-up pushed back against fears that data-center delays could hurt near-term revenue recognition.
Analysts turn more bullish
Several firms responded positively. Citi reiterated its Buy rating, saying Oracle had "cleared the runway" for its upcoming Investor Day. The firm described the fiscal 2027 outlook as "modest" and management's framework as "conservative," suggesting room for upward revisions given the scale of the first-quarter outperformance.
Barclays raised its price target to $252 from $250, implying about 65% upside from Thursday's close. The firm noted that Oracle's growth has inflected and should continue to accelerate, while the completion of its $20 billion at-the-market equity offering reduces financing uncertainty. Scotiabank maintained its Outperform rating, and Citizens analyst Patrick Walravens reiterated a Market Outperform rating with a $285 price target.
However, not all analysts were fully convinced. Morgan Stanley pointed to pressure on gross margins and the relatively modest increase in fiscal 2027 earnings guidance. Stifel lowered its price target to $200 from $220, though it still rates the stock a Buy, citing the strong quarter and the raised revenue outlook.
Oracle's stock has fallen about 22% this year, but the latest results and analyst commentary suggest the market may be reassessing the company's AI-driven growth story. The upcoming Investor Day, expected in late October, could provide further clarity on margin trends and data center expansion plans.
For investors, the key watchpoints remain margin stability, capital intensity, and the pace at which the $664 billion backlog converts into revenue. As Oracle continues to scale its AI cloud business, the balance between growth and profitability will be critical. Related coverage: Jefferies weighs Oracle's potential and options market hints at volatility.
This article is for informational purposes only and does not constitute financial advice.
