Original article byLi Hailun, Tencent Technology

Oracle delivered a record-breaking financial report. However, behind the data growth, AI cloud orders are driving up the company's data center investment and capital expenditure, pushing its full-year free cash flow into negative territory.

On June 10, U.S. local time, Oracle released its financial results for the fourth fiscal quarter of fiscal year 2026 (corresponding to February 2025 to May 2026) and the full year, ending May 31, 2026.

Oracle reported total revenue of $19.2 billion for its fourth fiscal quarter, a 21% year-over-year increase. Excluding the impact of currency fluctuations, the year-over-year growth was 20%, exceeding market expectations. According to data provided by LSEG, analysts had previously expected Oracle's fourth-quarter revenue to be $19.1 billion on average.

Oracle's fourth fiscal quarter financial data

Operating profit was $6.1 billion, a 20% increase compared to $5.1 billion in the same period last year; on a non-GAAP basis, Oracle's adjusted operating profit for the fourth fiscal quarter was $8.6 billion, compared to $7 billion in the same period last year.

Oracle's operating margin was 32%, compared to 33% in the same period last year. Excluding certain items, Oracle's operating margin for the fourth fiscal quarter was 45%, compared to 44% in the same period last year.

Net income was $4.22 billion, a 23% increase compared to $3.43 billion in the same period last year. Excluding non-GAAP items, Oracle's fourth-quarter net income was $6.2 billion, a 26% increase compared to $4.9 billion in the same period last year.

Diluted earnings per share were $1.45, a 21% increase compared to $1.19 in the same period last year. Excluding non-GAAP items, diluted earnings per share were $2.11, a 24% increase compared to $1.70 in the same period last year.

For the full year, Oracle's total revenue reached $67.4 billion, a 17% year-over-year increase, setting a new record. Cloud revenue totaled $34 billion, a 39% year-over-year increase, while software revenue was $24.5 billion, a 1% year-over-year decrease.

Oracle's full-year financial data for fiscal year 2026

Net income was $17 billion, up 36% year-over-year. Excluding non-GAAP items, net income was $22.2 billion, up 29% year-over-year. Earnings per share were $5.83, up 34% year-over-year. Excluding non-GAAP items, earnings per share were $7.63, up 27% year-over-year.

Behind the record-breaking revenue, AI is pushing up Oracle's revenue ceiling and increasing its capital expenditure pressure.

Oracle's operating cash flow for fiscal year 2026 was $32 billion, a 54% increase year-over-year. Free cash flow was negative $23.7 billion, and capital expenditures were $55.7 billion.

Oracle also announced a quarterly dividend of $0.50 per share, payable on July 24, 2026 to shareholders of record as of the close of business on July 10, 2026.

Following the earnings release, Oracle's stock price fell as much as 5% in after-hours trading. Previously, Oracle's stock price had risen 3% year-to-date, lagging behind the S&P 500 index, which rose 6% over the same period.

01 Cloud services account for half of Oracle's business

Oracle's cloud business (IaaS plus SaaS) contributed $9.9 billion in revenue in the fourth quarter, a year-on-year increase of 47%, and has already accounted for half of the company's total revenue.

The real driver of growth was the cloud infrastructure (IaaS) business, which generated $5.8 billion in revenue in a single quarter, a 93% year-over-year increase. This growth rate slightly exceeded market expectations of 91% and is among the top performers in the entire cloud computing industry. The company's full-year IaaS revenue reached $18.1 billion, a 77% increase.

Oracle's financial data for each business unit

In contrast, the cloud application business (SaaS) generated $4.1 billion in revenue in the fourth fiscal quarter, a growth rate of 10%, which is a steady but unremarkable level.

Traditional software licensing and support continued to shrink, with quarterly revenue of $6.8 billion, a 2% year-over-year decline, indicating that the trend of customers migrating to the cloud has not stopped. Services and hardware businesses grew by 13% and 9% respectively, but their smaller size had a limited impact on the company's overall performance.

Both the database and application businesses benefited from Oracle's early adoption of AI. Oracle's multi-cloud AI database revenue grew by 404% in the fourth fiscal quarter, with orders increasing by 325% year-over-year, making it the company's fastest-growing business ever. This growth rate demonstrates from a product perspective that AI-related demand is not limited to the infrastructure layer but is permeating upstream data management.

In its financial report, Oracle attributed its performance growth to widespread market demand for its cloud technologies and application suites. Looking at the changes in its revenue structure, Oracle has essentially completed its transformation from a database software company to a cloud infrastructure provider, with the computing power demand driven by AI being the biggest driver of this transformation.

02 The AI ​​Bet Behind the $638 Billion Order

The most eye-catching figure in the financial report is the remaining performance obligation, which is the total amount of orders for which contracts have been signed but revenue has not yet been recognized.

By the end of the fourth fiscal quarter, the figure reached $638 billion, compared to $553 billion a quarter earlier, representing a net increase of $85 billion over three months and a year-on-year growth of 363%. Wall Street analysts had previously predicted the figure to be between $590 billion and $600 billion, meaning the actual figure far exceeded expectations.

A Bank of America analyst report highlighted a key piece of information: over half of that $638 billion came from OpenAI. In other words, Oracle's largest customer is currently an AI startup, and that company itself is burning through cash.

In its statement, Oracle explained the composition of these orders. The majority of the new RPOs (Recovery Points of Purchase) come from large-scale AI contracts, either where customers pre-pay for GPUs or where customers purchase GPUs themselves and then entrust Oracle with deployment. Currently, the cumulative value of these customer-borne hardware cost contracts is $75 billion. Oracle explained that this arrangement significantly reduces the financial burden on the company to raise funds for building AI data centers.

This structure reduces some of Oracle's financial risk. However, the problem is that if its largest customer faces financial pressure, or if overall demand in the AI ​​industry fluctuates, the highly concentrated order structure itself becomes a risk factor.

Reuters analysis suggests that the software industry is facing investor concerns that AI tools could replace traditional software products, potentially pulling enterprise customers away from the traditional software space and posing an additional challenge to Oracle.

03 Behind the huge orders lies even heavier capital expenditure.

Supporting Oracle's $638 billion order book is massive capital investment. Oracle's capital expenditures in the fourth fiscal quarter were $15.9 billion, bringing the total for the year to $55.7 billion, significantly higher than Oracle's previous guidance of $50 billion.

Oracle's free cash flow turned negative to $23.7 billion

This directly led to a deterioration in free cash flow. Despite a record $32 billion in operating cash flow for the year, free cash flow turned negative at $23.7 billion after deducting capital expenditures.

To fill the funding gap, Oracle raised $43 billion through debt financing and $5 billion through equity financing in fiscal year 2026.

The company also announced plans to raise an additional $40 billion in fiscal year 2027, including the previously disclosed $20 billion equity financing. Oracle stated that it will not issue any new debt in the second half of 2026, but this news failed to stabilize market sentiment.

CNBC believes that previous funding rounds had already raised concerns among investors, as there was uncertainty about whether market demand for AI could absorb such a large influx of new capital. These concerns were further exacerbated when the company raised even more funding.

Reuters further analyzed that Oracle's performance may exacerbate two concerns among investors: first, the disruptive demand for traditional software driven by AI may pull enterprise customers away from the traditional software sector; second, the high level of debt on Oracle's balance sheet itself poses a financial risk.

TD Cowen analyst Derrick Wood pointed out that Oracle's previous stock price increase may have been due to investors' greater optimism about the prospects of OpenAI, a computing service provider and Oracle's most important customer.

In other words, the market had already accumulated a certain amount of gains and optimistic expectations before the earnings report was released. However, when new financing plans and higher-than-expected capital expenditures are made public, some investors will choose to reassess the risks or take profits, which will amplify the magnitude of the stock price correction.

04 Revenue target for fiscal year 2027: 90 billion

Oracle has given a clear expectation for the next phase of growth.

Total revenue growth for the first fiscal quarter of 2027 is projected to be between 27% and 29%, with adjusted earnings per share between $1.72 and $1.76. Both of these midpoints exceed analyst expectations. Furthermore, cloud revenue growth is guided at 57% to 63%, continuing its strong growth momentum.

For the entire fiscal year 2027, Oracle reaffirmed its revenue target of $90 billion and raised its adjusted earnings per share guidance to $8.05.

The company stated that this growth rate was calculated after excluding one-time items such as the sale of the Ampere chip business and Bloom Energy warrants in fiscal year 2026, and the actual year-over-year growth rate was approximately 18%. Analysts had previously expected earnings per share of $8.01 and revenue of $88.9 billion.

05. Focus on AI in healthcare

In addition to cloud infrastructure and AI computing power orders, Oracle is trying to extend its AI capabilities to more specific industry applications, with healthcare being one of its key areas of focus.

Oracle's Health Applications Suite will launch an AI-powered Cerner hospital and clinic patient care management system, which it expects to drive overall health business growth to double digits by fiscal year 2027. Oracle emphasized in a statement that this is just the beginning of its health business expansion.

In its longer-term technological vision, Oracle believes AI is poised to revolutionize healthcare. The company outlines three specific directions: Oracle Health's AI system will allow doctors to spend less time in front of computers and more time with patients; AI-powered molecular design models promise to accelerate the development of life-saving drugs; and a new AI-based clinical trial system is designed to enable regulatory agencies to quickly review and approve clinical trial results, thereby allowing patients to access new drugs more quickly.

Oracle doesn't want to be just an AI computing power provider; it also hopes to embed AI capabilities into specific processes such as medical software, drug development, and clinical trials. However, compared to cloud infrastructure orders, this part of the business is still in a much earlier stage, and whether it can truly be converted into large-scale revenue remains to be seen.