Oracle Corporation (ORCL) | The Buildout — AI Infrastructure
The Verdict
Oracle sells enterprise applications and databases, and it also builds and operates the cloud infrastructure those applications increasingly run on. Its AI role sits mainly in cloud infrastructure: GPU clusters, AI data centers, and the networking, storage, security and identity services around them. Management's argument is that the integrated stack is the product, not the GPU alone, and that argument is tested every quarter by how much capacity the company can bring online. The applications side sells AI-embedded software, most of it currently bundled at no extra charge. The structural tension is that the infrastructure half consumes capital at a scale the software half never had to.
| Market Cap | — |
| Revenue (TTM) | $71.8B |
| Revenue Growth | +21.6% |
| EBITDA Margin (TTM) | 47.5% |
| Net Debt | $118.9B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Remaining performance obligations were $638B at the May 31, 2026 fiscal year close, up 363% YoY, with about 12% expected to convert to revenue within twelve months.
- AI infrastructure contracts signed were $67B in Q4 FY26 and more than $30B in Q1 FY27; management said the Q1 total came 'without requiring additional capital from Oracle.'
- Capacity delivery accelerated: 850 MW in Q1 FY27, almost 3x all of Q4 FY26 and 73% of what was delivered in the full prior fiscal year. Abilene reached 6 of 8 buildings, 618 MW and 75% of capacity.
- $75B of large AI contracts at FY26 close were prepaid or customer-supplied hardware, and management says the new RPO will not require additional cash from Oracle.
- The GPU fleet ran at 97.9% utilization, and Q1 FY27 renewals and resales came in at a 20% premium to prior contracts, with the majority of those GPUs four years or older.
What We’re Watching
- Free cash flow was negative $5B in Q1 FY27 on $28B of CapEx; FY27 CapEx is guided to $90-95B gross with net cash CapEx of not more than $70B, and no date has been given for positive free cash flow. Total debt was $155,931M as of August 31, 2026.
- Cloud and software segment margin fell from 63% in FY25 to 59% in FY26, with $5.7B of a $5.8B expense increase attributed to infrastructure.
- Two large sites carry permitting or grid gates: New Mexico needs an air permit, and Wisconsin depends on delivery through the Public Service Commission, ATC and We Energies. New Mexico is scheduled for the first half of calendar 2027 and Wisconsin for the second half.
- Order-book concentration: four customers contracted for more than $8B each in Q4 FY26, inside the $67B of AI infrastructure contracts signed that quarter.
The demand and delivery side is strengthening. Booked demand keeps growing faster than it converts, capacity is coming online ahead of prior plans, and the contract structures increasingly put the hardware bill on customers rather than Oracle. The unresolved side is cash and margin: free cash flow is negative, CapEx is guided to $90-95B, and management has declined to give a gross-margin floor or a free-cash-flow date. The key open question is whether the customer-funded model actually caps Oracle's own cash burn or only shifts its timing.
Earnings Beat
Oracle's Q1 FY2027 revenue was a record $19.3 billion, up 30% year over year in US dollars, and total revenue grew sequentially in a Q1 for the first time. Gross margin was 60.0%, down from 65.2% in Q4 FY2026. Cloud infrastructure revenue was $7.4 billion, up 121% year over year and accelerating from 93% in Q4 FY2026, while management said non-GAAP operating margin was roughly flat at 42%.
| Metric | Q1 FY2027 | Q4 FY2026 | Q1 FY2026 | YoY |
|---|---|---|---|---|
| Revenue | $19.3B | $19.2B | $14.9B | +29.6% |
| Gross margin | 60.0% | 65.2% | 67.3% | -730bps |
| EBITDA | $10.1B | $9.0B | $4.7B | +114.7% |
| EPS | $1.59 | $1.48 | $1.01 | +57.7% |
| Cloud infrastructure (OCI) revenue growth | +121% YoY | +93% YoY (Q4 FY26) | n/a | Accelerating sequentially |
We closed more than $30 billion of additional AI contracts in Q1 without requiring additional capital from Oracle.— Clayton Magouyrk, CEO, 2026-09-10
Management tone: CFO Hilary Maxson framed the quarter with one word — acceleration — a shift from the prior call's scaling language, and the numbers moved with it: total revenue growth 21% to 30%, OCI 93% to 121%, and a raised FY27 guide. Management was direct on the New Mexico air permit and the Wisconsin grid process, and direct on component cost inflation. It corrected a questioner's premise, saying the new contracts need no additional cash from Oracle rather than no additional CapEx. It declined to give a free-cash-flow date or a breakdown of the new booking mix. The quarter also carried a CFO who said at the June call she had only been in the role two weeks, and the retirement of the long-serving head of investor relations.
Management Guidance
For Q2 FY2027 management guided total revenue to +30-34% in USD, cloud revenue to +65-71%, and non-GAAP EPS to $1.85-$1.93, up 21-25%. For the full year it raised revenue guidance to at least $90B (+34% YoY) and non-GAAP EPS to $8.10, with CapEx of $90-95B gross and net cash CapEx of not more than $70B; the CFO said CapEx would not be linear through the year. Management said component price inflation should not affect gross margins, that gross margin declined as expected and should flatten after the data-center ramp, and gave no gross-margin figure and no free-cash-flow timeline. The Q4 FY2026 press release stated that Oracle expects to raise approximately $40B in FY27 through debt and equity including its previously announced $20B at-the-market equity issuance; that issuance was completed in full during Q1 FY2027.
Trajectory
Revenue is climbing and the mix is shifting. Q4 FY2026 revenue was $19.2B, up 21%, and Q1 FY2027 was $19.3B, up 30% YoY — the first time Q1 revenue grew sequentially. The growth is concentrated in cloud infrastructure at $7.4B, up 121%, against 93% in the prior quarter, while SaaS grew 10%, Fusion 14% and software licensing declined. Gross margin is compressing as infrastructure revenue scales: 60.0% in Q1 FY2027 versus 65.2% in Q4 FY2026. On the reported EBITDA basis used here, operating income plus D&A, EBITDA margin rose from 46.8% to 52.1% over those same two quarters. Free cash flow stayed negative at $5.4B in the quarter and $28.7B on a trailing-twelve-month basis, reflecting the capital being deployed ahead of the revenue it produces.
The Model
The model projects FY+1 revenue of $92,000M with EBITDA of $47,380M, a 51.5% margin, and FY+2 revenue of $122,500M with EBITDA of $63,088M, also a 51.5% margin. The near-term anchor is conversion of contracted backlog into cloud infrastructure revenue as capacity is delivered; management says around half of the $638B in remaining performance obligations converts over the next 36 months. FY+2 depends on the same mechanism continuing, more megawatts online and more RPO recognized, alongside whether the applications base keeps growing at its recent rate.
| Metric | FY2026 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $67.4B | $92.0B | $122.5B |
| YoY Growth | — | +36.6% | +33.2% |
| EBITDA | $28.7B | $47.4B | $63.1B |
| EBITDA Margin | 42.6% | 51.5% | 51.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 7.8% below analyst consensus.
For Q2 FY2027 management guided total revenue to +30-34% in USD, cloud revenue to +65-71%, and non-GAAP EPS to $1.85-$1.93, up 21-25%. For the full year it raised revenue guidance to at least $90B (+34% YoY) and non-GAAP EPS to $8.10, with CapEx of $90-95B gross and net cash CapEx of not more than $70B; the CFO said CapEx would not be linear through the year. Management said component price inflation should not affect gross margins, that gross margin declined as expected and should flatten after the data-center ramp, and gave no gross-margin figure and no free-cash-flow timeline. The Q4 FY2026 press release stated that Oracle expects to raise approximately $40B in FY27 through debt and equity including its previously announced $20B at-the-market equity issuance; that issuance was completed in full during Q1 FY2027.
What Could Go Right — and Wrong
- Capacity delivery stays at or above the 850 MW quarterly pace, keeping cloud infrastructure revenue converting out of backlog.
- Management has cited project-level return on invested capital in the high 20s at steady state and a free cash flow conversion ratio near 100% of post-tax EBITDA.
- New AI contracts continue to be prepaid or bring-your-own-hardware, so growth does not require more cash from Oracle.
- Non-GAAP operating margin stays near the 42% printed in Q1 FY2027 as gross margin flattens after the data-center ramp.
- GPU renewals and resales keep pricing at or above prior contract levels, extending the useful life of the fleet.
- A permitting or grid slip at New Mexico or Wisconsin pushes capacity delivery, and the RPO conversion it gates, to the right.
- Customers stop prepaying or supplying their own hardware, forcing Oracle to fund the build itself.
- Component price inflation outruns contractual pass-through and lands in gross margin.
- The gross-margin floor disclosed at the October 2026 Investor Day comes in below what the current mix implies.
- A small number of very large AI contracts dominate the order book, so one counterparty's change of plan moves the backlog.
Looking Ahead
Over the next twelve months the story is capacity and cash. NVIDIA Vera systems reach customers in Q2 FY2027. The site schedule is back-end-loaded, with Shackleford and the New Mexico campus delivering in the first half of calendar 2027 and Michigan and Wisconsin in the second half.
- October 2026Investor Day — Gross-margin floor and long-term targets were deferred to this event.
- Q2 FY2027First NVIDIA Vera delivery — Vera systems ship after testing better than expected.
- 12/14/2026Q2 FY2027 earnings — Guide is +30-34% total revenue and +65-71% cloud revenue growth.
- 1H CY2027Shackleford, New Mexico delivery — Site acceptance at two campuses that gate later RPO conversion.
Financials
Annual Summary
| Metric | FY2025 | FY2026 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $57.4B | $67.4B | $71.8B | +17.4% |
| Gross Margin | 70.5% | 65.9% | 63.9% | 460bps |
| EBITDA | $23.9B | $28.7B | $34.1B | +20.4% |
| EBITDA Margin | 41.6% | 42.6% | 47.5% | +109bps |
| Net Income | $12.4B | $17.1B | $18.9B | +37.3% |
| Free Cash Flow | −$394M | −$23.7B | −$28.7B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)63.9%
- EBITDA Margin (TTM)47.5%
- Net Margin (TTM)26.4%
- ROIC9.9%
- FCF Conversion-84.2%
- SBC / Revenue8.3%
The Company
Oracle sells the software and the infrastructure that large organisations run on. The FY2026 10-K describes products and services that 'build, run and support enterprise information technology (IT) frameworks,' with applications and infrastructure offerings enhanced by AI and delivered worldwide. The AI buildout touches three layers: cloud infrastructure (OCI) for GPU clusters and AI data centers; the Oracle AI Database and AI Data Platform for enterprise data; and cloud applications such as Fusion, industry suites and NetSuite with embedded AI. Oracle reports three segments: cloud and software at 87% of FY2026 revenue, services at 8% and hardware at 5%.
Operationally, Oracle owns little of the physical plant. Its only disclosed internal manufacturing facility is leased, in Hillsboro, Oregon, for hardware products; the data-center capacity that drives growth comes from sites developed with partners and powered either by on-site generation or the grid. The customer-facing footprint covers 70 multi-cloud database regions and 119 availability zones, with private high-speed connections to all hyperscalers. FY2026 revenue was heavily Americas-weighted, $44,478M of $67,357M, which is consistent with where the data-center build is concentrated.
Business Segments
Competitive Landscape
Oracle's 10-K states that its enterprise cloud, software and hardware offerings compete directly with offerings from 'some of the largest and most competitive companies in the world,' naming Adobe, Alphabet, Amazon, Cisco, Intel, IBM, Microsoft, Salesforce and SAP. The intel file adds HPE and Workday, and healthcare-IT names including Allscripts, Arcadia Solutions, athenahealth, Epic Systems and InterSystems. Neighbour disclosures add the AI cloud providers CoreWeave and Nebius. Two documented wins show Oracle taking high-end application share: Memorial Hermann Health System chose Fusion over Workday, and a major Wall Street bank standardised on Fusion ERP, described as 'replacing SAP, full stop.'
- SAPNamed in the 10-K competitive set. Oracle cited a major Wall Street bank standardising on Fusion ERP and 'replacing SAP, full stop.'
- WorkdayNamed in the intel file's competitor list. Memorial Hermann Health System chose Fusion ERP/SCM/HCM in what the source describes as a competitive win over Workday.
- Amazon.com (AWS)Named in the 10-K set. Neighbour disclosure shows AWS up 36.7% YoY with a $496B backlog and FY26 capex raised to about $220B; Oracle's multi-cloud database also runs inside AWS.
- Alphabet (Google Cloud)Named in the 10-K set. Neighbour disclosure shows Google Cloud up 63% to $20B with a $462B backlog and GenAI revenue up about 800%; Oracle distributes Gemini into its applications.
- CoreWeaveNeighbour-verified AI cloud competitor: $99.4B backlog, more than $40B of quarterly bookings, more than 1 GW of active power, mostly sold out for 2026, with GPU pricing up across generations.
Supply Chain
Oracle buys GPUs, optics, servers and power, turns them into cloud capacity, and sells that capacity to frontier labs, hyperscalers, sovereigns and enterprises. At least one supplier names Oracle as a material customer: Applied Optoelectronics said Oracle accounted for 12.4% of its 2024 revenue.
More on ORCL: Earnings recap