Oracle reported better-than-expected earnings, yet plans to raise $20 billion led to a stock drop.
Oracle Corporation, a major player in the investors/">cloud computing and database management industries, recently released its fiscal fourth-quarter results, exceeding both earnings and revenue expectations. However, despite this positive performance, Oracle's stock experienced a significant decline of 10% in after-hours trading, driven by the company's announcement to raise an additional $20 billion through equity financing to support its ambitious AI initiatives.
For the quarter ending May 31, Oracle reported a remarkable 21% year-over-year revenue growth, bringing total revenues to $16.93 billion. This uptick was accompanied by a net income of $4.22 billion or $1.45 per share, up from $3.43 billion or $1.19 per share a year earlier. Notably, Oracle's adjusted earnings—which exclude stock-based compensation—came in robustly, leading the company to revise its earnings outlook for the coming year.
Oracle maintained its revenue guidance at $90 billion for the fiscal year 2027. Additionally, it increased its earnings per share forecast to $8.05, slightly exceeding analyst expectations of $8.01 per share and $88.9 billion in revenue.
The surprise element in Oracle's report was its strategy to raise a total of $40 billion through a mix of debt and equity financing, which includes the newly announced $20 billion share sale. This follows an extensive capital fundraising effort in fiscal 2026, where Oracle raised $43 billion in debt and $5 billion in equity. Investors are apprehensive about the potential need for such vast sums, raising concerns about justifying the capital in light of uncertain demand for artificial intelligence services.
Adding to investor concerns, Oracle disclosed a staggering $23.7 billion in negative free cash flow for the fiscal year, a figure that juxtaposes with its rapid growth trajectory. The company's depreciation expenses nearly doubled to $7.62 billion, reflecting the costs associated with expanding its capital expenditures, which surged by 162% to $55.7 billion.
Despite the structural challenges, Oracle projects its adjusted earnings per share for the fiscal first quarter will be between $1.72 and $1.76, anticipating revenue growth of 27% to 29%. Analysts had predicted slightly lower adjusted earnings at $1.68 per share and revenue of $19.06 billion, which implies an average growth of about 28%.
Oracle's cloud offerings showcased impressive growth, with revenues increasing by 47% in the quarter, reaching $9.91 billion. However, this figure was below the expectation of $9.97 billion from analysts. Software revenue, encompassing licenses and support, fell 2% to $6.82 billion, while cloud infrastructure revenue surged by 93%, totaling $5.8 billion. In comparison, Amazon Web Services, the industry leader, reported $37.59 billion for its cloud services in the same quarter.
Oracle's remaining performance obligation (RPO)—a measure of future revenue from signed contracts not yet recognized—climbed to a staggering $638 billion, reflecting a substantial 363% increase year-over-year. This growth is significantly attributed to large-scale AI contracts, as noted by the company, which involved customers prepaying for GPU purchases, a trend that lessens Oracle’s immediate cash requirements for data center construction.
Analysts at Bank of America view Oracle as a strong investment opportunity, emphasizing that a notable portion of the remaining performance obligation is sourced from OpenAI. This endorsement is particularly compelling given OpenAI's rising demand for advanced computing capabilities.
Oracle plans to enhance its computing capabilities with a target of deploying nearly one gigawatt of computing power in the current quarter—equivalent to its total capacity for fiscal 2026. CEO Clay Magouyrk indicated that this ambitious target is underpinned by Oracle's commitment to expanding its cloud infrastructure significantly.
In a notable strategic move, Oracle appointed Hilary Maxson from Schneider Electric as its new chief financial officer. Additionally, partnerships with industry heavyweights, such as Related Digital and Blackstone, have resulted in securing funding for a $16 billion data center site in Michigan, further bolstering its infrastructure development plans.
According to Maxson, Oracle's net expenses on capital in fiscal 2027 will approximate $70 billion, factoring in customer prepayments and other timing influences that could affect cash flow.
Amid these developments, Oracle's stock performance in 2026 remains tepid, having advanced only 3% compared to a 6% rise in the S&P 500 during the same timeframe. The market will be watching closely as Oracle attempts to balance its aggressive growth strategy with substantial capital needs and evolving investor sentiment.
Overall, while Oracle's impressive earnings report indicates strong operational performance, the announced plans for substantial capital raising have cast a shadow over investor enthusiasm. The market's reaction reveals a cautious sentiment, as investors weigh the prospects of growth against the implications of increased leverage and potential dilution of equity. As the company navigates this challenging landscape, stakeholder confidence will hinge on its ability to deliver on its ambitious AI and cloud initiatives while managing financial health.