Oracle Stock Soars 29% After Earnings Reveal Strong AI Backlog. What to Know.

Oracle stock is up 42% this year. (David Paul Morris/Bloomberg)

Oracle stock rose sharply after the software firm reported a mixed earnings report but revealed a significant increase in its backlog of contracted work.

Adjusted earnings-per-share for Oracle’s fiscal first quarter rose to $1.47 versus Wall Street’s consensus estimate of $1.48, according to FactSet, and up from $1.39 last year. Revenue for the quarter reached $14.9 billion, behind expectations for $15.0 billion, and up 12% over last year.

Oracle also missed expectations for cloud services revenue growth, a key metric. Guidance for the second quarter was also thin.

But the headline for many was Oracle’s contracted backlog rising to $455 billion, up from just $138 billion in the fourth quarter. The figure is indicative of the intense demand for renting AI servers in the cloud, a business that the firm, chaired by Larry Ellison, has only recently entered after years in the database market.

Oracle stock was up 29% at $312.32 in premarket trading on Wednesday.

“Unprecedented RPO [remaining performance obligations] growth acceleration in the first quarter highlights that we are still early in a multiyear AI investment cycle,” wrote William Blair analyst Sebastien Naji, who kept an Outperform rating on the stock in a research note.

“While shares are not inexpensive, the impressive RPO build points to a meaningful acceleration in Oracle’s revenue and earnings growth over the next several years,” Naji wrote.

Oracle’s headline sales growth masks a huge shift happening under the surface as Oracle follows the Microsoft playbook. Once just a vendor of packaged software, Oracle is shifting customers to cloud-based versions with annual subscriptions, while at the same time launching a public cloud to compete with Amazon.com’s Amazon Web Services and Microsoft’s Azure.

Oracle’s cloud growth has been made possible by the artificial-intelligence boom, and the rapidly expanding demand for renting AI servers in the cloud. First-quarter revenue from Oracle’s public cloud services were up 55% over the previous year.

“We signed four multi-billion-dollar contracts with three different customers in Q1,” Oracle CEO Safra Catz said in the earnings release. “Over the next few months, we expect to sign-up several additional multi-billion-dollar customers and RPO [backlog] is likely to exceed half-a-trillion dollars.”

“We have signed significant cloud contracts with the who’s who of AI, including OpenAI, xAI, Meta , NVIDIA , AMD and many others,” she revealed in the earnings call.

Ellison spoke to the intense pace of demand. “Someone called us: “We’ll take all the capacity you have that’s currently not being used anywhere in the world. We don’t care,” he said during the earnings call. “And I’ve never gotten a call like that.”

Once an asset-light company, Oracle has been aggressively building data centers to fulfill customer demand. In fiscal 2026 Oracle expects $35 billion in capital expenditures, up from $1.6 billion in 2020 before this shift began. The rocketing backlog will require even more capex to support it.

Created with Highcharts 9.0.1There is a stark contrast between Oracle’s ​sales growth in its red-hot cloud services​and the rest of the company.Source: OracleNote: annual revenue growth rates

Created with Highcharts 9.0.1Cloud ServicesEverything Else2024Q12025Q12026Q1-10-505101520253035%

Oracle looks like two different companies—the legacy business and the cloud segment. Cloud services represented nearly half of revenue in the first quarter, up from 25% in the first quarter of 2022.

Before Oracle’s cloud services started taking off, from 2012 through 2022, Oracle sales grew at an average rate of only 1.6%. But the company was also a cash-flow machine, allowing management to reduce the company’s diluted share count by an annual average of 5.3% through share buybacks, boosting per-share metrics by 84% over that period.

Because of the new capex, share repurchases have nearly come to a halt, and the share count is rising again. Free cash flow, operating cash flow minus capex, was negative two quarters in a row now. This is the trade-off for the rapid growth in cloud, which is starting to take over the company’s income statement.

Write to Adam Levine at adam.levine@barrons.com