Oracle Corp. comfortably beat first-quarter expectations today, driven by strong growth in its cloud infrastructure business, and that boosted its stock by about 4% in late trading.

The database giant reported earnings before certain costs such as stock compensation of $1.92 per share. That was a lot better than expected, as Wall Street analysts were looking for earnings of just $1.74 per share. Revenue for the period rose almost 30% from a year earlier, to $19.35 billion, surpassing the analyst consensus estimate of $19.14 billion. All told, Oracle posted net income of $4.68 billion in the quarter, up from $2.93 billion in the same period one year ago.

For the current quarter, Oracle said it’s targeting earnings of between $1.85 and $1.93 per share on revenue growth of between 30% and 34%. That was more or less in line with expectations. Wall Street is looking for earnings of $1.89 per share on sales of $21.2 billion, which would represent growth of 32%.

Oracle’s momentum in the last couple of years is almost exclusively a result of its fast-growing cloud infrastructure business, as the company scrambles to become a key player in the artificial intelligence boom. But the company is competing with hyperscalers like Amazon Web Services Inc. and Google LLC, which both have much stronger cash positions and superior credit ratings than Oracle, which now sits on a $125 billion debt pile. It ended the quarter with a negative free cash flow of $5.4 billion, way down from minus $362 million one year ago.

Capital expenditures in the first quarter rose to $28.5 billion from just $8.5 billion in the year-ago period. However, the company said it brought 850 megawatts of new data capacity online. That new capacity appears to have had the desired effect, because Oracle’s cloud infrastructure segment was by far and away the most impressive in terms of growth.

The business, which rents out AI servers to enterprise customers, saw sales rise 121% from a year earlier, to $7.4 billion in the quarter, beating Wall Street’s expectations. In contrast, the rest of Oracle’s business grew by just 3%.

The cloud infrastructure business also accounts for the bulk of Oracle’s backlog, which now stands at $664 billion. Almost half of that number stems from a single cloud infrastructure contract with OpenAI Group PBC, and as a result, Oracle’s fortunes have become a proxy for sentiment around the fast-growing AI startup, which is expected to go public soon.

Unfortunately for Oracle, sentiment around OpenAI hasn’t been as good as it once was, depressing the company’s stock this summer. Enthusiasm for OpenAI has faded in light of the rapid rise of its competitor Anthropic PBC. Moreover, both OpenAI and Anthropic are facing pricing pressure from less expensive “open-weight” models. That explains why, even after today’s rise, Oracle’s stock is still down 22% in the year to date, while the broader S&P 500 has gained around 11%.

Though the partnership with OpenAI is still vitally important for Oracle, its non-OpenAI backlog has more than doubled over the past year. That may give investors greater reassurance that it might not suffer quite as badly if things end up going pear-shaped for the AI startup.

Valoir analyst Rebecca Wettemann told SiliconANGLE that there’s still a legitimate reason for investors to be concerned about Oracle’s growing debt and its lack of cash flow. “The company needed to reassure investors that the demand is there for its data centers, and that it will have the resources to be able to meet that demand given the fluctuating input prices,” she said. “The RPO number is strong, and the GPU utilization numbers show Oracle is converting this backlog into recognized revenue.”

Holger Mueller of Constellation Research said he saw another encouraging sign for Oracle, pointing out that its customers are financing a good portion of its capex. “Increasingly, they’re pre-paying Oracle for equipment, and those pre-payments have now reached 40% of Oracle’s total capex, up from 0% a year ago,” Mueller said. “The amount doubled on a quarterly basis, and that’s a very strong sign that Oracle’s massive Oracle Cloud Infrastructure build out will succeed, because the customers are heavily invested.”

The analyst said the biggest concern for investors now is Oracle’s regional revenue mix. Most of the company’s recent growth was in the Americas, were revenue increased more in the previous quarter than it did in the fourth, which is traditionally its strongest, he said. “A year ago, APAC and EMEA combined generated approximately half of the revenue of the Americas, but fast-forward to today and that number is now just 40%,” Mueller said. “It’s not clear if this is due to cloud skepticism in those regions or just a slower OCI buildout, or possibly an execution challenge. Oracle will need to address this in the next few quarters.”

Oracle has bet the house on its ambitious data center buildout, and analysts were especially interested to see if this remains on track following a recent report by Bloomberg that a natural gas pipeline needed to power a new facility in New Mexico was running behind schedule. Chief Financial Officer Hilary Maxson said on a conference call in response to one analyst question that she wasn’t worried by the report. “Nothing that we know today would lead us to believe that New Mexico or any of our other sites are delayed relative to the schedules that we included, for example, in our fiscal ’27 outlook,” she insisted.

Oracle is also working hard to acquire an essential air permit in New Mexico, said Chief Executive Clay Magouyrk (pictured).

Oracle’s software business added $5.55 billion in revenue during the quarter, down 3% from a year earlier and below the Street’s $5.61 billion target. While that was disappointing, the software business did get a timely boost in the quarter when it announced that it had bagged a new contract with the Pentagon that could be worth up to $7 billion over the next decade. The contract covers the use of Oracle software in on-premises data centers by the U.S. military, the intelligence community and the Coast Guard.

For fiscal 2027, Oracle is now targeting adjusted earnings of $8.10 per share on revenue of at least $90 billion, it said. The Street is modeling earnings of $8.07 per share on sales of $89.76 billion. The company’s guidance on capital expenditure remains unchanged at between $90 billion and $95 billion.

Photo: Oracle