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Oracle (ORCL) is moving higher after beating expectations on the top and bottom lines and reporting accelerating cloud growth in its Q1 (Aug) report last night. Adjusted EPS of $1.92 was nicely above expectations, while revenue increased 29.6% yr/yr to $19.3 bln. ORCL guided Q2 revenue roughly in line with expectations and expects further acceleration in cloud revenue. ORCL also raised its FY27 outlook to at least $90 bln in revenue and adjusted EPS of $8.10, up from $8.05, with EPS landing above expectations.

• Cloud: Cloud revenue accelerated, increasing 62% yr/yr to $11.6 bln, fueled by triple-digit growth in Cloud Infrastructure, which increased 121% to $7.4 bln (+93% in Q4). ORCL delivered 850 MW of AI capacity and more than 300,000 GPUs since the end of Q4, with Q1 capacity delivery nearly 3x Q4 levels. Cloud Apps increased 10% to $4.2 bln. ORCL expects total cloud revenue growth of 65-71% in Q2, and expects Cloud Infrastructure growth to continue accelerating throughout FY27.
• RPO backlog: RPO reached $664 bln, up $209 bln yr/yr and $26 bln sequentially, as demand for AI cloud training and inferencing continues to outpace supply. ORCL booked more than $30 bln of additional AI cloud contracts in Q1, with the vast majority structured through prepayments, Bring-Your-Own-Hardware, or similar arrangements, resulting in no incremental impact on its capital-raising plans. ORCL expects around half of its RPO to convert into revenue over the next 36 months.
• Margins: Gross margin declined, reflecting the ramp-up of new data centers and accelerating mix toward Cloud Infrastructure. However, lower operating costs and operating leverage helped keep adj. operating margin roughly flat yr/yr at 42%. ORCL continues to expect a step down in gross margin this year, but expects gross margin to flatten over time as the infrastructure ramp-up matures.
• Capital intensity: Adjusted operating income increased 31% to $8.2 bln, helping drive record Q1 operating cash flow of $23 bln, up 184% yr/yr. However, CapEx of $28 bln resulted in negative free cash flow of $5 bln. ORCL reiterated FY27 CapEx of $90-95 bln, with net cash CapEx expected at no more than $70 bln.

Briefing.com Analyst Insight

This was a solid report from Oracle, highlighted by accelerating cloud growth and management's expectation for Cloud Infrastructure growth to continue accelerating throughout FY27. The continued increase in RPO points to a healthy demand environment, while the sharp acceleration in Cloud Infrastructure growth provides further evidence that ORCL is converting its massive backlog into revenue. GPU utilization also remained very high at 97.9%, while capacity coming up for renewal was renewed or resold at roughly a 20% premium despite the majority of those GPUs being four years or older, supporting the economics of ORCL's AI infrastructure buildout. With shares down more than 20% YTD heading into the report, the accelerating growth and visible progress against its backlog offer some relief. Margin pressure and free cash flow remain the main watch items as ORCL continues its heavy infrastructure buildout, though customer prepayments and alternative funding structures help offset the cash burden, while operating margins have remained resilient.