Oracle's cloud infrastructure revenue in the first quarter exceeded expectations, cooperating with Amazon AWS, and surged more than 9% after hours | Financial Report Insights

Oracle's first-quarter revenue, profit, and highly anticipated cloud infrastructure revenue all exceeded expectations. The company referred to the multi-cloud agreement signed with Amazon AWS as a "milestone" event, and soon customers will be able to use the latest Oracle database technology in every hyperscaler cloud. The outlook for AI demand is optimistic, leading to a post-market surge of over 9% in its stock price.

After the U.S. stock market closed on Monday, September 9th, Oracle, a leading provider of database software and cloud services, released its financial report for the first quarter of the 2025 fiscal year ending in August. Investors focused on the growth of cloud infrastructure revenue driven by AI demand.

1) Key Financial Data:

Revenue: Increased by 7% year-on-year to $13.3 billion, analysts expected $13.23 billion; notably, cloud infrastructure revenue increased by 45% year-on-year to $2.2 billion, exceeding analysts' expectations of $2.18 billion.

EPS: On a non-GAAP basis, increased by 17% to $1.39 per share year-on-year, analysts expected $1.33; on a GAAP basis, increased by 20% to diluted earnings per share of $1.03, compared to $0.86 in the previous year.

Operating Profit: On a non-GAAP basis, increased by 14% to $5.7 billion at fixed exchange rates, analysts expected $5.59 billion; on a GAAP basis, it was $4 billion.

Operating Margin: Non-GAAP basis was 43%, analysts expected 42.2%, GAAP basis was 30%;

Net Profit: On a non-GAAP basis, increased by 18% to $4 billion, on a GAAP basis, it was $2.9 billion;

Shareholder Returns: Quarterly cash dividend of $0.40 per share, to be paid to shareholders registered as of the close of business on October 10, 2024, with a payment date of October 24, 2024.

2) Segment Data:

Remaining Performance Obligations (RPO): This key indicator increased by 53% year-on-year to $99 billion, reaching a new company record high;

Cloud License and On-Premise License Revenue: Increased by 7% to $870 million year-on-year;

Cloud Revenue (IaaS and SaaS): Increased by 21% to $5.6 billion year-on-year, analysts expected $5.61 billion;

Among them, Cloud Application (SaaS) revenue increased by 10% to $3.5 billion year-on-year, analysts expected $3.41 billion; Fusion Cloud ERP (SaaS) revenue increased by 16% to $900 million; NetSuite Cloud ERP (SaaS) revenue increased by 20% to $900 million.

3) Future Performance Guidance:

Oracle expects adjusted EPS for the second quarter to be between $1.45 and $1.49 per share. Revenue is expected to increase by 8% to 10% year-on-year. Cloud revenue is projected to increase by 24%-25% year-on-year. It is expected that expenses will double year-on-year in the 2025 fiscal year, with revenue showing double-digit percentage growth

In the first quarter, 42 new cloud GPU contracts were signed, worth $3 billion. The strong contract backlog will support revenue growth in the fiscal year 2025.

The biggest news is the multi-cloud agreement signed with Amazon AWS. Oracle's latest Exadata hardware and database software version 23ai will be embedded in AWS cloud data centers. When launched in December this year, AWS customers can easily access Oracle databases.

After the financial report was released, Oracle's stock fell 1.4% on Monday but surged over 9% after hours. The stock has risen by about 32% this year, outperforming the S&P 500.

Oracle describes the multi-cloud agreement with Amazon AWS as a "milestone," accelerating profit growth

Oracle CEO Safra Catz stated in the financial report, "As cloud services become Oracle's largest business, both operating profit and earnings per share growth have accelerated."

Chairman and CTO Larry Ellison further elaborated:

"Oracle has 162 cloud data centers operating and under construction worldwide. The largest of these data centers is 800 megawatts and will contain acres of NVIDIA GPU clusters for training large-scale AI models.

Due to previous multi-cloud agreements with Microsoft and Google, the company's database business growth rate is increasing. By the end of the company's first quarter, Microsoft has launched 7 Oracle cloud regions, with 24 under construction, and Google has launched 4 Oracle cloud regions, with 14 under construction.

Our recent agreement with Amazon AWS is a milestone in the multi-cloud era. Soon, customers will be able to use the latest Oracle database technology in every hyperscaler cloud."

Oracle CEO Safra Catz previously stated when announcing the fourth-quarter performance ending in May that the company is benefiting from the growing data demand for training and running AI models. During the quarter, over 30 AI-related sales contracts were signed, totaling $12.5 billion. Despite the quarter's revenue falling short of market expectations, this positive news on AI demand led to a 13% increase in the stock price.

In terms of the most important cloud infrastructure revenue (OCI), this business revenue accelerated in the first quarter (up 45% year-on-year), with growth rates of 66%, 52%, 49%, and 42% in each quarter of the past 2024 fiscal year, totaling $2 billion in the last quarter. The company expects OCI revenue growth rate to exceed 50% year-on-year by the end of the fiscal year 2025 ending in May.

Morgan Stanley pointed out that the scarcity of AI hardware is driving Oracle's OCI business growth. Jefferies believes that if Oracle wants to achieve double-digit total revenue growth, it will need to see sustained OCI demand and continuously improving OCI capacity. Additionally, Oracle's strong order backlog growth must be maintained, with the remaining performance obligations increasing by 44% year-on-year to $98 billion in the last quarter

How does Wall Street view it? Oracle's AI strategy is very comprehensive, but the stock price has limited room for growth

In June, Oracle announced cloud infrastructure agreements with Microsoft, OpenAI, and Google, effectively pushing the stock price to a new intraday high of $146.59 in July.

However, despite high expectations for financial reports and AI-driven cloud revenue, Wall Street analysts believe that Oracle's stock price has limited upside potential. Their consensus rating is "Buy," with a target price of $145.15, representing less than 3% growth potential.

Some analysts point out that with the continuous growth in demand for artificial intelligence, investors will focus on the development momentum of Oracle Cloud services. The company is also likely to announce new AI cooperation agreements at the CloudWorld annual customer conference scheduled for this week, as well as unveil plans for a new AI factory.

Furthermore, OCI (Oracle Cloud Infrastructure) is a key part of the company's transformation from a traditional database company to an enterprise cloud service provider, directly competing with Amazon AWS and Microsoft Azure. Given Oracle's contracts with many AI startups and the accumulation of a large demand for cloud services, this is expected to drive accelerated revenue growth in the coming quarters.

It is worth mentioning that Wall Street generally recognizes that strategic partnerships will boost Oracle's AI performance. In addition to a "major collaboration" with the "most mysterious" big data company Palantir Technologies, Oracle has been providing accelerated computing instances and software services to enterprises through OCI in partnership with NVIDIA for many years. Starting this year, the cooperation to provide AI solutions has expanded.

Some analysts also point out that Oracle's AI strategy is very comprehensive, embedding AI capabilities into its cloud infrastructure, databases, enterprise applications, and analytics tools, and continuously enhancing its AI products, with a focus on machine learning, natural language processing, and computer vision, aiming to provide customers with smarter, more efficient, and more automated solutions. In other words, Oracle has a unique advantage and can leverage its AI capabilities to drive growth in the "cloud services and software licensing business" where OCI is located:

The company's Oracle Cloud Infrastructure (OCI) has enhanced AI capabilities, providing powerful data analysis, automation, and decision-making tools for enterprises, with an expected increase in OCI adoption. This strategic move is likely to translate into increased cloud revenue and an increase in market share in the fiercely competitive cloud computing sector dominated by companies such as Microsoft, Google, and Amazon