Oracle Q2 Earnings: New CEOs Try To Clarify AI Capital Costs, Show Growth Across Applications And Infrastructure

‘We are the only applications company in the world that’s selling complete application suites,’ Oracle co-CEO Mike Sicilia says.

Oracle co-CEO Clay Magouyrk sought to clarify how the vendor finances capacity buildouts offered to customers with growing artificial intelligence infrastructure demand amid growing concerns over AI’s profitability for the technology sector.

During the Austin, Texas-based vendor’s Wednesday quarterly earnings call–covering the second fiscal quarter, ended Nov. 30–Magouyrk said that “a lot of people don’t understand” all the options available to Oracle as it builds data centers for some of the largest AI model providers around.

While Magouyrk fielded infrastructure questions on the call, fellow CEO Mike Sicilia broke down growth areas across the applications portfolio and painted the business as a differentiator for Oracle compared to other hyperscalers and to app vendors focused on best of breed instead of a complete apps package across front office, back office, industry-specific apps and “everything in between.”

“We are the only applications company in the world that’s selling complete application suites,” he said. “As you look at customers tiring of spend on best of breed, because the integration costs are so high and it’s hard to bolt AI on all that because you’re actually not retiring anything in the process, we’re in a very unique position.”

[RELATED: Oracle Launches Multi-Cloud Services Reseller Program, Universal Credits]

Oracle Q2 Earnings

The performance of the co-CEOs might foreshadow a changing of the guard and new era for Oracle. Chief Technology Officer Larry Ellison, who co-founded the company in 1977, was quieter than usual on Wednesday’s call.

The two CEOs took up much of the call’s airtime while Ellison focused his opening statements on capabilities across Oracle applications, database products and AI data platform.

“Very soon, through the lens of AI, you will be able to see everything happening in your business as it happens,” Ellison said on the call.

He also answered a single analyst question on additional selling opportunities for Oracle thanks to its multicloud approach and improvements to Oracle database and data storage products to enable AI use cases.

“So far, none of the other large-scale databases have been able to do that,” he said. “We can do that and keep your data secure. That’s one of the bigger issues. We have to scale it, keep your data, keep everything reliable and keep it secure.”

He added: “We take all of your data and unify it so you can ask a single question and the AI model can find the answer to that question regardless of what data store it’s in. That’s really a unique proposition. And we think that thing is going to turbo charge the use of our database and the use of our cloud dramatically.”

Oracle Surpasses 700 AI Customers

The vendor now has more than 700 AI customers on its platform, including the majority of large model providers, Magouyrk said.

Clarifying how Oracle finances data center and capacity buildouts for growing demand by AI customers, he said that Oracle doesn’t incur expenses for large data centers until they’re actually operational. The vendor has also experimented with allowing customers to bring their own chips, saving Oracle an upfront expense.

Some customers are interested in renting capacity instead of purchasing it, which reduces capital spending and borrowing by Oracle, he said. In certain cases, Oracle will raise funds to finance buildouts, but Magouyrk stressed that “we’re committed to maintaining our investment-grade debt rating.”

Analysts forecasting upwards of $100 billion in spending for the buildouts should expect “less, if not substantially less money raised than that amount to go and fund this build out” based on Oracle’s current estimates, he said.

Rapid delivery of Oracle capacity should help improve gross margins quickly to reach the 30 percent to 40 percent the vendor expects, Magouyrk said.

The capacity is also fungible among customers, he said, with the ability to spin up a bare-metal computer in a few minutes and the ability to recycle the computer for another customer in less than an hour. The large model providers might take two or three days to spend the capacity Oracle gives them, reflecting the need for quick buildouts.

Infrastructure revenue for the quarter was $4.1 billion, up 66 percent year on year. Revenue related to graphics processing units more than doubled. Oracle handed to customers almost 400 megawatts of data center capacity and delivered 50 percent more GPU capacity quarter over quarter, Magouyrk said.

The vendor makes sure that custom AI infrastructure contract margins “make sense for our business” through analyzing land and power for data center building, component supply–including GPUs, network gear and optics–labor costs for all phases of construction and low-voltage work, engineering capacity for building and operating plus the capital investments required, the co-CEO said.

“Only when all these components come together do we accept customer contracts, having the confidence we can deliver on schedule with the highest quality,” Magouyrk said.

Partner Community ‘Rapidly Expanding’

During the earnings call, Magouyrk praised Oracle’s “rapidly expanding partner community” for improving customer experiences with Oracle Cloud Infrastructure (OCI). He pointed to new AI models from Google, OpenAI and xAI available through Oracle’s products as an example.

Oracle’s recently launched multicloud services reseller program is an important effort “which enables customers to procure Oracle database services through their preferred channel partners” and continue fueling growth in the vendor’s booming multicloud business, the co-CEO said.

The multicloud database grew ninefold in the second fiscal quarter, marking its fastest growing business. Oracle has 211 live and planned regions worldwide and is more than halfway through building 72 multicloud data centers that are embedded throughout Amazon, Google and Microsoft’s clouds.

It launched 11 multicloud regions in the quarter, reaching 45 regions live across Amazon Web Services, Azure and Google Cloud Platform with 27 more planned over the next month. Marketplace consumption grew 89 percent year over year, he said.

Magouyrk dismissed any competitive concerns from so-called AI infrastructure neoClouds, offering specialized clouds built for intensive AI and high-performance computing (HPC) workloads, saying that Oracle’s diversity and breadth of capabilities in multicloud and dedicated regions differentiates the vendor.

Oracle’s infrastructure and applications portfolio differentiates it from other hyperscalers, the co-CEO added.

Cloud Apps Sales Hit $3.9 Billion

Cloud application revenue grew 11 percent year on year to $3.9 billion during the quarter, Oracle reported Wednesday.

Strategic back-office applications revenue was $2.4 billion, up 16 percent year on year. Cloud applications also reached a $16 billion annualized run rate (ARR).

Oracle’s apps-focused co-CEO, Sicilia, broke down growth in other parts of the Oracle apps portfolio on the call:

“We see this business as continuing to accelerate going forward,” he said.

Doug Kehring, named Oracle’s principal financial officer when former CEO Safra Catz moved into the role of executive vice chair, told analysts on Wednesday’s call to expect more cross-selling and higher cloud application growth rates in the future due to Oracle combining industry-based cloud apps and Fusion Cloud apps under one selling organization in each region across the world.

Sicilia added that the vendor sees “more and more deals where our industry apps are pulling Fusion or the Fusion apps are pulling the industry apps.” Along with more deals, Oracle sees larger deals with more components.

The unified sales organization opens more opportunities to move the Oracle installed base into the cloud, where the vendor sees a three to fivefold annual revenue lift compared to support revenue, the co-CEO said. The vendor saw 330 cloud app customer go-lives during the quarter.

“AI, of course, is a great OCI play–and it’s also a broader software play for Oracle,” he said. “It’s driving growth in our applications and our database businesses as well.”

Oracle Q2 In Detail

Oracle reached $523 billion in remaining performance obligations in the second fiscal quarter, up more than fivefold year on year ignoring foreign exchange. That also marks a $68 billion and 15 percent jump quarter on quarter. Companies that helped fuel that pipeline include Facebook parent Meta and chip giant Nvidia.

Total revenue for the quarter came in at $16.1 billion, up 13 percent ignoring foreign exchange. Cloud revenue brought in $8 billion, up 33 percent year on year and an acceleration on the 24 percent growth for the same period last year. This also marked three consecutive quarters of double-digit total revenue growth.

The vendor saw software revenue fall 5 percent year on year ignoring foreign exchange, coming in at $5.9 billion.

With the sale of Oracle’s stake in Ampere as a result of the semiconductor’s $6.5 billion acquisition by Japanese investment holding company SoftBank, Oracle no longer wants to design, manufacture and use its own chips in its cloud data centers.

The vendor is committing to a chip neutrality policy, working closely with central processing unit (CPU) and GPU suppliers. The vendor expects it will keep buying Nvidia’s latest GPUs, but it will prepare itself for deploying any chips customers request, according to Oracle.

Oracle’s pivot away from making its own chips stands in contrast to hyperscalers Microsoft, Amazon Web Services and Google, who have pursued their own chips to meet the high demand for AI and in an effort to potentially bring down the cost of AI.

Oracle received a $2.7 billion pre-tax gain from the sale of Ampere, according to the vendor.

The vendor’s operating income for the quarter using Generally Accepted Accounting Principles (GAAP) was $4.7 billion. Non-GAAP operating income came in at $6.7 billion, up 8 percent year on year.

Oracle saw $6.1 billion in GAAP net income and $6.6 billion without using GAAP, which was up 54 percent ignoring foreign exchange. Oracle’s operating cash flow over the prior 12 months was $22.3 billion, up 10 percent year on year.

Oracle saw a negative free cash flow of $10 billion with capital expenditures reaching $12 billion. Most of that CapEx went into revenue-generating equipment in its data centers, not for land buildings or power that collectively are covered through leases, Kehring said.

Oracle doesn’t pay for leases until delivery of the completed data centers and accompanying utilities, he said. Oracle spends CapEx on equipment late in the data center production cycle, which means cash spent quickly becomes revenue earned as cloud services are provisioned for contracted and committed customers.

Oracle’s stock traded at about $197 a share, down about 11 percent after market close.

Oracle Q3 Guidance

Oracle added $4 billion in revenue to its fiscal year 2027 expectations due to the amount of near-term capacity available for bookings. It kept its fiscal year 2026 $67 billion revenue expectation.

It also expects a $15 billion higher fiscal year 2026 CapEx, Kehring said. “While we continue to experience significant and unprecedented demand for our cloud services, we will pursue further business expansion only when it meets our profitability requirements and the capital is available on favorable terms,” he said.

For the third fiscal quarter, Oracle said to expect total cloud revenue growth from 37 percent to 41 percent ignoring foreign exchange. Total revenues should grow from 16 percent to 18 percent.