Key Moments
- Oracle forecasts the ongoing AI data center surge will fuel revenue above Wall Street expectations through at least fiscal 2027, driving an 8.3% rise in its stock during extended trading.
- Remaining performance obligations climbed 325% year over year to $553 billion in the third quarter, surpassing the $540.37 billion forecast and topping the prior quarter’s $523 billion.
- The company lifted its fiscal 2027 revenue outlook to $90 billion, ahead of analysts’ $86.6 billion estimate, and guided for strong fourth-quarter growth in total and cloud revenue.
AI Infrastructure Strategy Calms Profitability Concerns
Oracle on Tuesday signaled that the rapid build-out of AI-focused data centers will underpin its growth at least through fiscal 2027, a message that sent the stock up 8.3% in after-hours trading.
The outlook addresses investor skepticism that Oracle’s heavy, multi-billion dollar investments in AI computing capacity would take too long to translate into earnings. The company has been repositioning itself around constructing data centers for partners including OpenAI and Meta, while simultaneously cutting staff and relying on smaller engineering teams and AI-assisted coding to develop new products for its large enterprise customer base.
RPO Surges on Large-Scale AI Contracts
Remaining performance obligations (RPO) – a measure of contracted revenue that is yet to be recognized – jumped 325% from a year earlier to $553 billion in the third quarter. That result exceeded the $540.37 billion consensus from four Visible Alpha analysts and was above the $523 billion reported in the preceding quarter.
Oracle said that most of the RPO increase in the period stemmed from sizable AI-related agreements. Despite its significant borrowing, the company stated that it “does not expect to have to raise any incremental funds” to support these commitments.
| Metric | Current Quarter | Previous Quarter | Analyst Estimate |
|---|---|---|---|
| Remaining Performance Obligations (RPO) | $553 billion | $523 billion | $540.37 billion |
Long-Term Revenue Outlook and AI Demand Signal
Oracle raised its fiscal 2027 revenue target to $90 billion, ahead of the $86.6 billion expected by analysts, according to LSEG data.
“Oracle’s quarter is a beat and a stress test result for the AI trade,” said eMarketer analyst Jacob Bourne. “As the most debt-exposed major player in AI infrastructure, Oracle is the canary in the coal mine and this report suggests there’s underlying health in AI spending beyond the hype.”
Cloud Margin Profile and Product Mix
On a conference call with investors, Clay Magouyrk, one of Oracle’s two CEOs, said the company anticipates improving profitability in its cloud operations over time. He reiterated prior commentary that offering AI chips from partners such as Nvidia on a rental basis should generate margins of 30% to 40%.
Magouyrk added that 10% to 20% of customer outlays with Oracle’s cloud business are expected to flow into other services, which may include the firm’s database offerings that carry gross margins of 60% to 80%.
“When you combine all of these pieces together, the overall margin profile of (Oracle Cloud Infrastructure) continues to strengthen and grows rapidly,” Magouyrk said.
Data Center Expansion and Competitive Landscape
Oracle’s aggressive construction of new data centers is central to its push to secure a larger share of AI-related workloads. The company has been investing heavily to scale its cloud infrastructure to support generative AI, competing for business against major providers such as Amazon’s AWS and Microsoft’s Azure.
AI Coding Tools and SaaS Strategy
During the call, Oracle co-founder and executive chairman Larry Ellison addressed broader concerns that AI-driven coding tools could reduce demand for enterprise software. He argued that such worries are misplaced in Oracle’s case, since the company is using these tools internally to develop software-as-a-service (SaaS) offerings with lean engineering teams.
“Thank God we have these coding tools now that allow us to build a comprehensive set of software — agent-based software to automate a complete ecosystem like healthcare, or financial services,” Ellison said. “That’s why we think the ’SaaS’-apocalypse applies to others but not to Oracle.”
Quarterly Results and Fourth-Quarter Guidance
For the third quarter ended February 28, Oracle reported total revenue of $17.19 billion, above the average analyst expectation of $16.91 billion, according to LSEG data.
| Period / Metric | Oracle Guidance / Result | Analyst Estimate (LSEG) |
|---|---|---|
| Q3 Total Revenue | $17.19 billion | $16.91 billion |
| FY 2027 Revenue Outlook | $90 billion | $86.6 billion |
| Q4 Adjusted EPS | $1.96 – $2.00 | $1.94 per share |
| Q4 Total Revenue Growth (U.S. dollars) | 19% – 21% | 20.2% to $19.12 billion |
| Q4 Cloud Revenue Growth (U.S. dollars) | 46% – 50% | 48% to $9.98 billion |
For the current fiscal fourth quarter, Oracle projected adjusted earnings between $1.96 and $2.00 in U.S. dollars, above the $1.94 per share expected by analysts. The company guided for fiscal fourth-quarter revenue growth of 19% to 21% in U.S. dollars, which it said is consistent with expectations of 20.2% growth to $19.12 billion.
Similarly, Oracle forecast cloud revenue growth of 46% to 50% in U.S. dollars, in line with projections of 48% growth to $9.98 billion.
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