Oracle Corporation (NYSE: ORCL)

Oracle’s Q1 FY2026 financial performance was exceptional, with total revenue growing 12% to $14.9 billion, representing the company’s strongest quarterly growth in recent years. The growth was primarily driven by cloud services, particularly Infrastructure as a Service (IaaS), which has become Oracle’s fastest-growing segment as enterprises increasingly adopt AI and machine learning workloads.

The most remarkable achievement was the 359% increase in Remaining Performance Obligations (RPO) to $455 billion. This massive growth reflects Oracle’s success in securing large, multi-year cloud infrastructure contracts, including four multi-billion-dollar deals signed in Q1. CEO Safra Catz noted that Oracle expects to sign several additional multi-billion-dollar customers, potentially pushing RPO beyond half a trillion dollars.

Cloud revenue reached $7.2 billion, up 28% year-over-year, now representing 48% of total revenue compared to 42% in the prior year. This growth was led by Cloud Infrastructure revenue of $3.3 billion (up 55%) and Cloud Applications revenue of $3.8 billion (up 11%). The strong cloud performance more than offset softness in traditional software licensing.

On the profitability front, GAAP operating income increased 7% to $4.3 billion, while non-GAAP operating income grew 9% to $6.2 billion. The company maintained strong margins despite significant investments in cloud infrastructure capacity, with non-GAAP operating margin of 42%. Net income performance showed mixed results, with GAAP net income flat at $2.9 billion but non-GAAP net income up 8% to $4.3 billion.

Oracle’s cash generation remained robust, with trailing twelve-month operating cash flow of $21.5 billion, up 13% year-over-year. However, free cash flow turned negative due to unprecedented capital expenditures of $8.5 billion in the quarter, reflecting massive investments in cloud infrastructure capacity to meet growing AI demand.

Cloud Infrastructure (IaaS) was the standout performer with revenue of $3.3 billion, up 55% year-over-year. This exceptional growth reflects Oracle’s strong position in the AI infrastructure market, with customers increasingly choosing Oracle Cloud Infrastructure for AI training and inference workloads. The segment benefits from Oracle’s GPU availability, high-performance networking, and competitive pricing for AI workloads.

Cloud Applications (SaaS) delivered solid growth of 11% to $3.8 billion, driven primarily by Fusion Cloud ERP and NetSuite. Fusion Cloud ERP revenue reached $1.0 billion (up 17%), while NetSuite also achieved $1.0 billion in revenue (up 16%). These enterprise applications continue to benefit from digital transformation trends and Oracle’s competitive product offerings.

MultiCloud Database revenue showed explosive growth of 1,529% in Q1, as noted by Chairman Larry Ellison. This reflects Oracle’s partnerships with Amazon Web Services, Google Cloud, and Microsoft Azure, allowing customers to run Oracle Database on these platforms. Oracle plans to deliver 37 additional datacenters to hyperscaler partners for a total of 71.

Software Support revenue remained stable at $5.0 billion, up 1% year-over-year, representing Oracle’s large installed base of on-premises customers. While growth is modest, this segment provides high-margin recurring revenue and represents opportunities for cloud migration.

Software License revenue declined 12% to $766 million, reflecting the ongoing shift from on-premises to cloud deployments. This trend is expected to continue as customers increasingly prefer cloud-based solutions over traditional software licensing.

Oracle’s transformation to a cloud-first company is evident in the segment mix, with cloud revenue now representing 48% of total revenue compared to 42% in the prior year. The company expects this trend to accelerate as more enterprises adopt cloud infrastructure for AI workloads.

Oracle’s AI strategy is positioned at the center of its growth narrative, with several key initiatives driving unprecedented demand for cloud infrastructure:

Oracle AI Database

At Oracle AI World, the company will introduce the revolutionary “Oracle AI Database” service that enables customers to use Large Language Models directly on top of Oracle Database. This includes integration with Google’s Gemini, OpenAI’s ChatGPT, xAI’s Grok, and other leading AI models. This innovation allows Oracle’s tens of thousands of database customers to instantly unlock value in their data using advanced AI reasoning models.

Cloud Infrastructure for AI

• GPU Availability: Oracle has secured significant GPU capacity, giving it a competitive advantage in the AI infrastructure market where GPU availability is constrained
• High-Performance Networking: Oracle’s cloud infrastructure features ultra-low latency networking optimized for AI training and inference workloads
• Competitive Pricing: Oracle offers attractive pricing for AI workloads, making it cost-effective for enterprises to run large-scale AI projects
• Integrated Stack: Oracle’s integrated approach from database to AI provides a seamless experience for customers

MultiCloud AI Strategy

Oracle’s partnership strategy with hyperscalers (AWS, Google Cloud, Microsoft Azure) is accelerating through its MultiCloud approach. The company plans to deliver 37 additional datacenters to hyperscaler partners, bringing the total to 71. This strategy allows Oracle to reach customers wherever they are while maintaining control over the database layer.

Customer Adoption

The massive increase in RPO to $455 billion demonstrates strong enterprise demand for Oracle’s AI-enabled cloud infrastructure. Larry Ellison emphasized that “AI Changes Everything,” and Oracle’s infrastructure is uniquely positioned to support this transformation. The company’s ability to secure four multi-billion-dollar contracts in a single quarter highlights the scale of enterprise AI adoption.

Oracle’s AI strategy represents a fundamental shift in how enterprises will interact with their data, moving from traditional analytics to AI-powered insights and automation. This positions Oracle at the forefront of the next wave of enterprise technology adoption.

Oracle’s RPO performance in Q1 FY2026 was nothing short of extraordinary, representing a paradigm shift in the company’s business model and customer commitment levels:

Record-Breaking Growth

RPO increased 359% year-over-year to $455 billion, driven by Oracle signing four multi-billion-dollar contracts with three different customers. This growth rate is unprecedented in Oracle’s history and reflects the scale of enterprise demand for cloud infrastructure, particularly for AI workloads.

Revenue Visibility and Predictability

The massive RPO backlog provides Oracle with exceptional revenue visibility over the next several years. CEO Safra Catz noted that “most of the revenue in this 5-year forecast is already booked in our reported RPO,” providing investors with confidence in Oracle’s growth trajectory.

Strategic Implications

• Long-term Customer Commitments: Multi-billion-dollar contracts represent deep strategic partnerships with large enterprises, indicating customer confidence in Oracle’s AI infrastructure capabilities
• Capital Allocation: The large RPO backlog enables Oracle to make significant upward revisions to its Cloud Infrastructure investment plans
• Competitive Positioning: The scale of these commitments suggests Oracle is winning large deals against competitors in the AI infrastructure space
• Revenue Predictability: High RPO provides predictable cash flows that support continued infrastructure investments

Future Pipeline

Management indicated that Oracle expects to sign several additional multi-billion-dollar customers in the coming months, with RPO likely to exceed half a trillion dollars. This suggests the Q1 performance was not a one-time event but rather the beginning of a sustained period of large customer commitments.

Financial Plan Revision

The scale of RPO growth has enabled Oracle to make a large upward revision to its Cloud Infrastructure financial plan. Management will present detailed forecasts at the Financial Analyst Meeting, with expectations that Cloud Infrastructure revenue will grow 77% to $18 billion in fiscal 2026, then increase to $32 billion, $73 billion, $114 billion, and $144 billion over the subsequent four years.

Americas delivered the strongest performance with revenue of $9.7 billion, up 15% year-over-year, representing 65% of total revenue. This growth was driven by large cloud infrastructure deals and continued strength in SaaS adoption. The region benefited from strong enterprise AI adoption, particularly in the United States where many of the large multi-billion-dollar cloud infrastructure contracts were signed.

Europe, Middle East & Africa (EMEA) showed solid growth of 8% to $3.5 billion, representing 23% of total revenue. The region experienced steady growth in both cloud infrastructure and applications, though at a more moderate pace than the Americas. EMEA continues to represent an important growth opportunity as European enterprises accelerate their digital transformation initiatives.

Asia Pacific revenue increased 4% to $1.8 billion, representing 12% of total revenue. While growth was more modest, the region showed consistent progress in cloud adoption. Oracle continues to invest in cloud infrastructure capacity in the region to support growing demand from enterprises adopting AI workloads.

The geographic revenue distribution reflects Oracle’s strong position in developed markets, particularly North America, where enterprises are leading AI adoption. The company’s global cloud infrastructure expansion, including partnerships with hyperscalers, positions it well to capture growth opportunities across all regions as AI adoption accelerates globally.

Oracle maintained strong profitability metrics despite significant investments in cloud infrastructure capacity, demonstrating the scalability of its cloud business model:

• GAAP Operating Margin: 29% compared to 30% in the prior year, a slight decline of 133 basis points reflecting increased cloud infrastructure investments
• Non-GAAP Operating Margin: 42% compared to 43% in the prior year, down 111 basis points but still maintaining strong profitability
• Cloud Gross Margins: Remained strong despite increased capacity investments, benefiting from economies of scale and improved utilization
• Software Margins: Continued to deliver high margins, providing cash flow to fund cloud infrastructure investments

Operating Expense Management

Total operating expenses increased 14% to $10.6 billion, primarily driven by:

• Cloud and software expenses up 39% due to increased cloud infrastructure capacity
• Research and development up 8% reflecting continued innovation investments
• Restructuring expenses of $402 million related to optimization initiatives
• Stock-based compensation up 12% due to headcount growth and equity compensation

Capital Expenditure Strategy

Oracle invested $8.5 billion in capital expenditures during Q1, a massive increase from $2.3 billion in the prior year. This unprecedented investment reflects:

• Building cloud infrastructure capacity to meet growing AI demand
• Securing GPU and networking equipment in a supply-constrained environment
• Expanding datacenter footprint globally and with hyperscaler partners
• Positioning for the revenue growth outlined in the 5-year plan

While these investments pressure near-term free cash flow, they position Oracle to capture the massive AI infrastructure opportunity and deliver the revenue growth embedded in its $455 billion RPO backlog.

Oracle provided an ambitious long-term outlook that reflects the transformational impact of its cloud infrastructure success and AI strategy:

Cloud Infrastructure Growth Forecast

Management outlined an aggressive multi-year growth plan for Cloud Infrastructure revenue:

• Fiscal 2026: $18 billion (77% growth)
• Fiscal 2027: $32 billion
• Fiscal 2028: $73 billion
• Fiscal 2029: $114 billion
• Fiscal 2030: $144 billion

This forecast reflects the revenue potential embedded in Oracle’s $455 billion RPO backlog and expected future customer commitments.

Strategic Priorities

• AI Infrastructure Leadership: Continued investment in GPU capacity, high-performance networking, and AI-optimized infrastructure
• Database AI Integration: Launch of Oracle AI Database to enable LLM integration with existing database workloads
• MultiCloud Expansion: Delivering 37 additional datacenters to hyperscaler partners
• Customer Success: Supporting enterprise AI transformation with integrated cloud and database solutions

Market Opportunity

Oracle’s outlook is based on several key market trends:

• Accelerating enterprise AI adoption driving massive infrastructure demand
• Preference for integrated cloud and database solutions
• Need for high-performance, cost-effective AI infrastructure
• Growth in AI training and inference workloads

Financial Analyst Meeting

Oracle will present detailed financial forecasts at its upcoming Financial Analyst Meeting, providing investors with comprehensive visibility into its long-term growth strategy and financial targets. This meeting will likely include detailed segment forecasts, capital allocation plans, and margin expectations.