“We are the only applications company in the world that sells a complete suite of applications,” said Mike Sicilia, co-CEO of Oracle.
Oracle Co-Chief Executive Officer Clay Maguik sought to clarify how the vendor is financing increased capacity to provide customers with growing demand for artificial intelligence infrastructure, amid growing concerns about the profitability of AI in the technology sector.
During the Austin, Texas-based vendor's Wednesday quarterly earnings call (covering the second fiscal quarter ending Nov. 30), McGourk said “a lot of people don't understand” all the options available to Oracle when building data centers for major AI model providers.
While Magouik answered questions about infrastructure on the conference call, fellow CEO Mike Sicilia portrayed the business as a differentiator for Oracle, breaking down growth areas across its application portfolio and comparing it to other hyperscalers and application vendors that focus on best-of-breed products rather than complete application packages across front office, back office, industry-specific applications, and “everything in between.”
“We are the only application company in the world that sells a complete suite of applications,” he said. “We're in a very unique position when you look at customers who are tired of paying for the best products because the integration costs are so high and it's hard to bolt AI into all of that because you don't actually obsolete anything in the process.”
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Oracle's second quarter earnings
The co-CEOs' performance may herald a changing of the guard and a new era at Oracle. Chief Technology Officer Larry Ellison, who co-founded the company in 1977, was quieter than usual on Wednesday's conference call.
Both CEOs took up the bulk of the call, with Ellison focusing his opening remarks on the capabilities of Oracle applications, database products, and AI data platforms across the board.
“Soon, you will be able to see everything happening in your business as it is through the lens of AI,” Ellison said by phone.
He also answered one analyst's question about Oracle's multicloud approach and further sales opportunities from improving Oracle database and data storage products to enable AI use cases.
“So far, no other large database has been able to do this,” he said. “We can do that and we can keep the data safe. That's one of the big questions. We have to scale it, we have to maintain the data, we have to keep it all reliable, we have to keep it secure.”
He continued, “We take all the data and integrate it, so you can ask one question and our AI model can find the answer to that question, no matter which data store it's in. This is a really unique proposition, and we think it will dramatically accelerate our use of databases and our use of the cloud.”
Oracle surpasses 700 AI customers
Magwirk said the vendor's platform currently has more than 700 AI customers, including most of the large model providers.
He revealed how Oracle is financing data centers and capacity additions in preparation for growing demand from AI customers, saying that Oracle won't incur costs until large-scale data centers are actually up and running. The vendor is also experimenting with allowing customers to bring their own chips, saving Oracle initial costs.
He said some customers are interested in renting capacity rather than buying it, which reduces Oracle's capital expenditures and debt. In some cases, Oracle will have to raise money to fund the expansion, but Magouik emphasized that “we are committed to maintaining our investment-grade debt rating.”
He said that based on Oracle's current estimates, analysts who expect to spend more than $100 billion on the build-out should expect it to be “significantly less, if not significantly less, than what we are raising to fund this build-out.”
Delivering Oracle capacity quickly should quickly improve gross margins, reaching the 30% to 40% expected by the vendor, Matouyrk said.
He said this capacity is fungible between customers, allowing him to start up a bare metal computer in minutes and recycle it for another customer within an hour. Large model providers may take 2-3 days to use up the capacity provided by Oracle, reflecting the need for rapid builds.
Infrastructure revenue for the quarter was $4.1 billion, an increase of 66% year over year. Revenues related to graphics processing units more than doubled. Oracle delivered approximately 400 megawatts of data center capacity to customers and 50% more GPU capacity than last quarter, Magwirk said.
The co-CEOs said the vendors ensured that contract margins for custom AI infrastructure “make sense for our business” by analyzing land and power for data center construction, component supplies including GPUs, networking equipment and optics, labor costs for all stages of construction and low-voltage work, engineering capacity to build and operate, as well as required capital investment.
“Only when all these components are in place can we accept a contract with a customer with confidence that we will deliver on time and at the highest quality,” says Magooik.
Partner community is “rapidly expanding”
During the earnings call, Magooik praised Oracle's “rapidly expanding partner community” for improving the customer experience on Oracle Cloud Infrastructure (OCI). As examples, he cited new AI models from Google, OpenAI, and xAI that are available through Oracle's products.
Oracle's recently launched Multicloud Services Reseller Program is an important initiative that “enables customers to procure Oracle database services through their preferred channel partners,” and will continue to drive growth in the vendor's burgeoning multicloud business, the co-CEOs said.
Multicloud databases grew 9x in the second fiscal quarter, representing the fastest growing business. Oracle has 211 active and planned regions around the world and is more than halfway through building out 72 multicloud data centers across Amazon, Google, and Microsoft clouds.
We launched 11 multicloud regions in the quarter, with 45 regions live across Amazon Web Services, Azure, and Google Cloud Platform, and 27 more regions planned for next month. He said marketplace spending increased 89% year-over-year.
Magouyrk dismissed competitive concerns from so-called AI infrastructure neoClouds, which offer specialized clouds built for intensive AI and high-performance computing (HPC) workloads, saying Oracle's diversity and breadth of capabilities in multi-cloud and dedicated regions differentiates the vendor.
Oracle's infrastructure and application portfolio differentiates it from other hyperscalers, the co-CEOs added.
Cloud app sales reach $3.9 billion
Oracle on Wednesday reported that cloud application revenue for the quarter rose 11% from a year earlier to $3.9 billion.
Strategic back-office applications revenue was $2.4 billion, up 16% year-over-year. The annual execution rate (ARR) of cloud applications also reached $16 billion.
Cicilia, Oracle's apps-focused co-CEO, discussed growth in other parts of Oracle's app portfolio during the conference call.
- Oracle's Fusion Cloud Enterprise Resource Planning (ERP) revenue increased 17% year-over-year to $1.1 billion, ignoring currency.
- NetSuite, an Oracle subsidiary, brought in $1 billion, up 13% year-over-year, accelerating its 9% year-over-year growth rate.
- Fusion Supply Chain Management (SCM) grew 18% year-over-year, although revenue not listed
- Fusion Human Capital Management (HCM) increased by 14%
- Fusion customer experience (CX) increased by 12%
- Hospitality, construction, retail, banking, restaurants, local government, and telecom clouds grew by a combined 21%
- Currently, 274 customers are running Oracle Health's Clinical AI Agent in production.
“We think this business will continue to accelerate,” he said.
Doug Koehring, who was named Oracle's chief financial officer when former CEO Safra Catz became executive vice chairman, told analysts on a conference call Wednesday that Oracle expects to see more cross-selling and faster growth in cloud applications in the future as it consolidates its industry-based cloud apps and Fusion Cloud apps under one sales organization in each region of the world.
Sicilia added that vendors are seeing “more and more deals where our industry apps pull Fusion, or Fusion apps pull industry apps.” In addition to more deals, Oracle is also considering larger deals with more components.
A unified sales organization will provide more opportunities to move Oracle's installed base to the cloud, and the vendor will see 3-5x annual revenue growth compared to support revenue, the co-CEOs said. The vendor went live with 330 cloud app customers during the quarter.
“AI is, of course, a great strategy for OCI and also a broader software strategy for Oracle,” he said. “This is also driving growth in our applications and database business.”
Oracle Q2 Details
Oracle's remaining performance obligations in the second fiscal quarter amounted to $523 billion, an increase of more than five times year over year, ignoring currency. This also represents a quarter-over-quarter increase of $68 billion, or 15%. Companies that have helped drive the pipeline include Facebook's parent company Meta and semiconductor giant Nvidia.
Total revenue for the quarter was $16.1 billion, an increase of 13% at constant currency. Cloud revenue brought in $8 billion, up 33% year-over-year and accelerating growth of 24% year-over-year. This also marks the third consecutive quarter of double-digit growth in total revenue.
The vendor's software revenue decreased 5% year-over-year to $5.9 billion, excluding currency.
With the sale of Oracle's Ampere stake as a result of Japanese investment holding company SoftBank's $6.5 billion semiconductor acquisition, Oracle no longer wants to design, manufacture, and use its own chips in its own cloud data centers.
The vendor works closely with its central processing unit (CPU) and GPU suppliers on a chip neutrality policy. Oracle said it expects vendors to continue purchasing Nvidia's latest GPUs, but that it will be ready to introduce any chips that customers demand.
Oracle's shift away from manufacturing its own chips stands in contrast to hyperscalers Microsoft, Amazon Web Services and Google, which have pursued their own chips to meet high demand for AI and potentially lower the cost of AI.
Oracle made a pre-tax gain of $2.7 billion from the sale of Ampere, according to the vendor.
The vendor's generally accepted accounting principles (GAAP) operating income for the quarter was $4.7 billion. Non-GAAP operating income was $6.7 billion, an increase of 8% from the prior year period.
Oracle's GAAP net income was $6.1 billion, or $6.6 billion non-GAAP, an increase of 54%, ignoring currency. Over the past 12 months, Oracle's operating cash flow was $22.3 billion, an increase of 10% year over year.
Oracle's free cash flow was negative $10 billion and capital expenditures were $12 billion. Most of that capital investment went toward revenue-generating equipment within the data center, rather than land, buildings, or power, which are all covered by leases, Koehling said.
Oracle will not make lease payments until it delivers the completed data center and associated utilities, he said. Oracle invests in capital equipment late in the data center production cycle. This means that when a cloud service is provisioned for a subscribed customer, the cash spent turns into revenue immediately.
Oracle stock traded at about $197 per share, down about 11% after market closed.
Oracle Q3 Guidance
Oracle added $4 billion in revenue to its fiscal 2027 forecast due to the amount of near-term capacity available for reservations. The company maintained its fiscal year 2026 sales forecast of $67 billion.
Additionally, capital spending will increase by $15 billion in fiscal 2026, Keling said. “While we continue to experience significant and unprecedented demand for our cloud services, we intend to pursue further expansion only if it meets our profitability requirements and capital is available on favorable terms,” he said.
Oracle said it expects total cloud revenue before currency to increase 37% to 41% for the third fiscal quarter. Total revenue should increase from 16% to 18%.
