Oracle stock is on pace for its best day this century as analysts heap praise on the 48-year-old tech firm's fiscal first-quarter report. But Wall Street was less wowed by the most recent results than by the huge growth in Oracle's backlog for AI-related cloud computing capacity.
Oracle said in a news release late Tuesday that the company's remaining performance obligations surged 359% to $455 billion during its August-ended quarter. RPO, measuring contracted revenue that has not yet been recognized, is a closely watched metric for Oracle's backlog as it scales up cloud data centers to serve AI demand. That number appeared to surprise even bullish Oracle stock analysts.
"I think we're all kind of in shock in a very, very good way," Deutsche Bank analyst Brad Zelnick told Oracle Chief Executive Safra Catz on a conference call Tuesday afternoon.
In the news release, Catz said Oracle expects its RPO to reach $500 billion over the next few months. That growth has been powered by demand for Oracle Cloud Infrastructure, the enterprise tech giant's competitor to the cloud offerings of Amazon, Microsoft and Google parent Alphabet.
Oracle embraced cloud computing later than those companies and remains a much smaller player in the business of renting cloud-computing servers to enterprises. But the tech firm is seizing on the massive computing demands of companies making AI algorithms. Oracle announced in July that it will develop 4.5 gigawatts of data center capacity for ChatGPT creator OpenAI as an expansion of the broader Stargate AI data center initiative.
"Oracle has become the go-to place for AI workloads," Catz told analysts Tuesday. "We have signed significant cloud contracts with the who's who of AI, including OpenAI, xAI, Meta, Nvidia, AMD, and many others."
Results Drive Best Day This Century For Oracle Stock
Tuesday's results are bolstering the view that Oracle will be an AI winner.
In late morning trades on the stock market today, Oracle stock was up more than 41% to 341.42. That is well above the previous record high of 260.87. It also would mark Oracle's largest single day share-price gain since Dec. 23, 1992, when Oracle stock rallied 44%, according to Dow Jones Market Data.
The gains on Wednesday place Oracle ahead by more than 104% year to date. That would place Oracle among the top 2025 performers in the S&P 500.
Last year, Oracle stock gained more than 60% for its best performance since 1999. Meanwhile, Oracle stock has an IBD Composite Rating of 93 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one easy-to-use rating.
Oracle Stock's AI Gains
Oracle's "staggering" RPO backlog offers a clearer trajectory for Oracle's multiyear AI growth, William Blair analyst Sebastien Naji wrote late Tuesday. He rates Oracle stock as outperform.
To that point, Catz said in a news release that Oracle expects its cloud infrastructure revenue will grow 77% to $18 billion this fiscal year and reach $144 billion by its fiscal 2030.
BofA Securities analyst Brad Sills upgraded Oracle stock to a buy from a previous neutral call in a note to clients early Wednesday.
"Although profitability of AI workloads remains a key debate, it is clear that Oracle is capturing share in the large and rapidly growing market for AI infrastructure (we estimate that the AI applications industry alone will represent $155 billion by 2030)," Sills wrote. "Oracle is clearly leveraging a number of advantages in its cloud software/hardware businesses to attract the largest of the AI enterprises."
Barclays analyst Raimo Lenschow called the quarter "transformational" in a note where he upped his price target to 347 for Oracle stock, from a previous 281. That was despite Oracle's actual August-quarter earnings slightly missing estimates.
"Q1 in itself was the typical small quarter," Lenschow wrote. "However, this does not matter, as the large AI contracts Oracle signed this quarter fundamentally changes the P&L trajectory in the years to come. We continue to see Oracle as an AI winner."
Oracle is hosting an analyst day at its annual Cloud World convention in October, Lenschow noted, offering another potential catalyst.
Can Oracle Scale Up To Meet Demand?
A challenge for Oracle will be scaling up data centers to meet the demand of its 12-figure backlog. Oracle posted negative free cash flow of $362 million for the quarter. That comes as Oracle grew capital expenditures to $8.5 billion, compared with $2.3 billion a year earlier. Catz told analysts that Oracle expects to spend $35 billion on capex for its fiscal 2026, up from a previous $25 billion estimate.
"The build-out of OCI entails elevated capex, but we believe long-term investors will accept this trade-off to secure a leadership position in next-gen AI infrastructure, while also capturing accelerating revenue and EPS," Evercore ISI analyst Kirk Materne wrote to clients Wednesday. He rates Oracle as outperform.
But D.A. Davidson analyst Gil Luria stuck by a neutral call for Oracle stock following its report. He cited concerns about profitability as Oracle scales up its AI-focused cloud business.
"We're led to believe that, at best, Oracle is operating their virtual machines or GPU (graphics processing units) rental business at single-digit operating margins, if not serving compute at a loss in some instances," Luria wrote to clients Wednesday. "Which presents a drastic shift as Oracle itself moves away from its 50% operating margin legacy business, that could hinder earnings growth to single digits, even if revenue growth reaches the midteens.
