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Oracle (ORCL -0.64%) reported its fiscal 2025 fourth-quarter results on June 11, delivering quarterly revenue of $15.9 billion (up 11%) and annual revenue of $57.4 billion (up 9%), surpassing earlier guidance. It also raised its fiscal 2026 revenue target to over $67 billion, forecasting 16% growth. The company highlighted its cloud revenue, which grew by 27% to $6.7 billion in the quarter, and its remaining performance obligation (RPO) which rose 41% to $138 billion, It also expects over 70% growth in its cloud infrastructure (IaaS) segment.
Unprecedented Cloud Demand Drives Record Capex and Supply Constraints
In the quarter, which ended May 31, Oracle’s cloud infrastructure services reached an annualized revenue run rate of nearly $12 billion, yet its supply was insufficient to meet surging demand. In its efforts to build out its footprint to take advantage of that mismatch, it laid out $9.1 billion in capital expenditures, which resulted in negative free cash flow of $2.9 billion. The company projects that its capex will exceed $25 billion in fiscal 2026, up from $21.2 billion in fiscal 2025, with the “vast majority” of it dedicated to revenue-generating data center equipment.
“[W]e are putting out as much capacity as we possibly can as quickly as we can. I do believe that the $25 billion next year may turn out to be understated. So it is all to meet demand. We don’t order, we don’t build, unless we’ve got orders for our capacity to be built out. And we have so much in orders right now that I actually expect, I believe I said on the call, over $25 billion this next quarter. And that is, again, to match demand.”
— Safra Catz, Chief Executive Officer
This aggressive and customer-commitment-driven capex deployment signals strong visibility into future contracted revenues, providing investors with a rare level of confidence in its long-term sales growth. However, it also introduces near-term margin pressures and execution risks if supply lags persist.
Data Monopoly and AI Enablement Create Unique Enterprise Moat
Oracle’s database business — which company Chairman Lawrence Ellison says is responsible for storing “most of the world’s valuable data” — serves both as the foundation for customers’ cloud migrations and as the AI data layer, enabling integration of proprietary enterprise data with large language models (LLMs) across every major public cloud. Autonomous database consumption revenue surged 47% on top of last year’s 27% growth, while cloud database services reached $2.6 billion annualized.
“Our database takes all of your data, our applications take all of your application data, and make that data available to the most popular AI models. If you like ChatGPT, you use ChatGPT. If you like Grok, you use Grok. You use that in the Oracle Cloud. We are the key enabler for enterprises to use their own data and models. No one else is doing that. That makes sense. … This is not a small point. This is why our database business is going to grow dramatically.”
— Lawrence Ellison, Chairman & Chief Technology Officer
Oracle’s ability to operationalize AI on enterprise data securely across multicloud environments differentiates its stack, positioning its high-margin database franchise to be a secular beneficiary of global AI adoption.
Strategic SaaS Portfolio Accelerates, Targeting Full-Suite Enterprise Adoption
Annualized revenue from strategic back-office SaaS (software-as-a-service) applications rose 20% to $9.3 billion in the quarter. Oracle continues to win market share by offering end-to-end vertically integrated product suites, eliminating the need for multivendor integration, and leveraging embedded data and analytics.
“So we’re seeing a lot of companies basically saying, ‘I’m gonna go all Oracle. I’m gonna buy the complete Oracle suite for ERP, EPM, chain manufacturing.’ … [O]ur intent is to give some of our biggest customers a one-stop shop where they can buy the entire suite to run their enterprise from us. And that gets rid of a lot of headaches. Everything is in the same database. Everything comes with the same AI data platform with it. All the analytics are there. Everything is there. You don’t have to do the system integration. That has been our strategy for some time, and that’s all coming together. As a bunch of companies are not successfully navigating this admittedly difficult transition from on-premise to the cloud, we’re picking up a lot of their users.”
— Lawrence Ellison, Chairman & Chief Technology Officer
By capturing customers transitioning from legacy on-premise solutions and consolidating disparate vendors, Oracle is expanding its long-term recurring revenue base.
Looking Ahead
Management guided for fiscal 2026 revenue of at least $67 billion (up 16%), while RPO is projected to grow by more than 100%. Oracle also expects to surpass its previously stated revenue growth targets for fiscal 2027 and fiscal 2029, and promised to offer a more detailed long-range update at Oracle Cloud World in October.
This article was created using Large Language Models (LLMs) based on The Motley Fool’s insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.